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Truth in Lending Act



The Truth in Lending Act (TILA), which originally was enacted in 1968, sets out requirements for lenders in presenting and calculating interest rates and costs of loans for consumers. The purpose of the Act is to provide a way for consumers to compare loan provisions in order to make an informed choice, and so they may understand the costs of loans they are signing.

The Act covers credit card lending, revolving credit, lines of credit, business and consumer loans, and installment agreements.

By law, a contract for any of these types of lending must include:

  • The finance charge - the cost of the credit over the life of the loan
  • The Annual Percentage Rate (APR), showing the cost of credit as a percentage. Because of compounding, the APR is usually higher than the interest rate)
  • The schedule of payments - amounts and dates
  • The Amount financed
  • The total of the payments - the total cost of the loan in dollars.

Some types of contracts include a right to rescind (cancel) the loan within 3 days.

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