Finance
Under the Truth in Lending Act (TILA), what is the 'annual percentage rate' (APR) and how does it differ from the interest rate?
AAPR and interest rate are always the same
BAPR reflects the true cost of credit including interest rate plus fees, expressed as an annualized rate — it is typically higher than the nominal interest rate✓ Correct
CAPR is the interest rate excluding lender fees
DAPR is only relevant for adjustable rate mortgages
Explanation
Under TILA, lenders must disclose the APR, which reflects the total cost of credit including interest rate plus certain fees (origination fees, mortgage broker fees, most closing costs) expressed as an annual percentage. The APR is typically higher than the stated interest rate and allows borrowers to compare loan offers on an apples-to-apples basis.
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