Know the Laws about Lending; Know the Truth
When doing your research for your new or used car loan, it is important to be aware of the provisions of the Truth in Lending Act of 1968, also known as the “Consumer Credit Protection Act,” which governs all car loan lenders. We've provided a condensed version below to make it easier to understand. Knowing the provisions of this act will ensure borrower protection when applying for a loan and throughout the length of your car.
Your Rights-Full Disclosure
The lender is required to disclose to you, the borrower, all the fees and interest that are being imposed and where they are going. If you have any questions about these fees and costs, you are entitled to an explanation of them. This doesn’t mean that the lender has to sit down with you and explain every little detail of the loan papers he presents to you.
You must inform yourself before going out and looking for a loan and know what certain things mean. In short, the lender is required to explain to you exactly how much you will end up paying once the loan has been fully paid off, whether or not you pay it off early, or use the full term of the loan. Full disclosure also means that the lender is required to inform you about the car loan terms. According to the FDIC website, there are five terms considered “material disclosures” and are required by the TILA.
This is defined as what the extension of the loan will cost over the length of the loan, expressed as a dollar amount. This not only includes interest, but documentation fees, credit check s fees and any other fees. It is expressed a dollar amount
Annual Percentage Rate
This is the cost of the credit expressed as a percentage. It is the amount of interest charged for an annual period rather than a monthly fee. Generally speaking, it calculated by taking the current monthly interest rate and multiplying it by the amount of payments in the year.
This is how much the loan costs the consumer expressed as a percentage of the amount borrowed. As an example, your loan rate may be 10%, but your APR may actually be 15%, after all the fees and costs have been added in. Expressed as a dollar amount, this is the amount of money you borrow to buy your car.
Schedule of Payments
This tells the borrower and lender exactly what is expected from the borrower and when. This is expressed as exact dates and dollar amounts. The exact dates you are expected to make your payments and the exact amounts of those payments.
There are two basic types of credit available, open ended and close ended. An open ended line of credit is like a credit card. You make a purchase and carry a balance. If the balance isn’t paid off by the statement period, it incurs a finance charge. This type of credit can increase by responsibly managing the balance and payments over time. Closed ended credit has a distinct beginning and end, with set payments over the life of the credit extension, like a car loan. There is no increasing the limit on this type of loan.
This is also expressed as a dollar amount and totals up all of the payments listed in the schedule of payments. Expressed as a dollar amount, this is the amount of money you‘ve paid by the end of the term. This is assuming payments are prompt.
The loans law doesn’t allow for cancellation of any loan when there is a lien against a consumer’s principal dwelling, like it does for a mortgage loan. What this means is that is the responsibility of you as the buyer to carefully examine all of the loan documents you are presented with and to be completely sure that you fully understand everything contained in them before you sign them.
The Truth in Lending act was put in place to protect consumers from unfair credit practices by unscrupulous lenders. It is your responsibility to know what is covered by the Act and what isn’t. It is the responsibility of the lender to make sure they have presented all the information you require to make an informed decision regarding your loan. If you feel your rights under TILA have been violated, you need to contact an attorney immediately. It may also be a good idea to contact the local District Attorney and see if they have a Consumer Protection Division. If the lender has failed to offer proper disclosure, then you are allowed to file suit. If you win, you may recover any damages you suffer plus an amount equal to twice the finance charges. You may also recover a punitive damage of between $200 and $2000. If you win, your attorney fees should be paid by the lender.