Credit is the right to put off paying for something you get now.\u00a0 Credit almost always costs money.\u00a0 When you buy a car or a living room set in installment payments, you pay more than if you bought it for cash.\u00a0 If you take out a loan — whether from a bank or a pawnshop — you have to pay back more than you borrowed.\u00a0\u00a0 But how much more?<\/p>\n
One element of the cost of credit is interest<\/em>, expressed as an interest rate.<\/p>\n In olden times, laws limited the interest rates that various kinds of lenders could charge.\u00a0 Charging excessive interest is called usury<\/em>.\u00a0 Many religious traditions still consider usury to be immoral, especially when directed at poor people.\u00a0 But over the past generation, as “deregulation” became national policy, laws against usury eroded.\u00a0\u00a0 Nowadays, in most loans and sales there are no limits<\/em> on\u00a0 interest rates and other charges!\u00a0 Where there are legal limits, such as in the sale of used cars, they are high.\u00a0 This puts the burden on us, as users of credit, to know the cost before we sign on the line.<\/p>\n Credit is a service that\u2019s bought and sold.\u00a0 You can shop for it, just as you shop for the best price on other goods and services.\u00a0\u00a0 The costs of credit varies depending on who is lending the money and also depending on your credit score.\u00a0 But it can be hard to compare different offers of credit.\u00a0 One car loan might be for 4 years, another for 6 years.\u00a0\u00a0 Repayment intervals might be every week, every two weeks, or every month.\u00a0 In addition to interest, there may be application fees, acquisition fees, and other kinds of fees. \u00a0 How can you tell which is the best deal?<\/p>\n A federal law known as the Truth-in-Lending Act (TILA)\u00a0 helps you shop for credit.\u00a0 Enacted in 1968, it is a powerful tool to compare different offers of credit and choose the least expensive.\u00a0 In a marketplace where you don\u2019t have a lot of friends, the Truth-in-Lending Act is your friend.\u00a0 But it only works if you use it!<\/p>\n TILA is a disclosure law.\u00a0 \u201cDisclosure\u201d means \u201ctelling.\u201d\u00a0 TILA does not regulate how much a creditor may charge.\u00a0 Rather, TILA makes every extender of credit disclose its terms in a uniform format, in a timely way, so that you can compare offers of credit and choose the best buy.<\/p>\n A transaction is covered by TILA if it involves the extension of consumer credit<\/em> by a creditor.\u00a0 Consumer credit<\/em> means credit for your personal, family, or household use.\u00a0 (That is to say, this law does not apply to business or commercial transactions.) \u00a0 A creditor<\/em> is a person or company that routinely engages in credit transactions. \u00a0 (That is to say, when your parents lend you money, it’s not covered.)\u00a0 Some transactions of more than $50,000 are not covered by TILA, but because documents are prepared by commercial printers in formats designed to comply with the law,\u00a0 you often get the benefit of its main disclosures in such transactions as well.<\/p>\n You have almost certainly encountered TILA whether you know it or not. \u00a0 This\u00a0 Sample used car contract\u00a0 <\/a>illustrates the standard format of boxes highlighting the key terms of the transaction.\u00a0 In future posts I will discuss each of these, beginning with the most important terms, the Finance Charge and the Annual Percentage Rate.<\/p>\n <\/p>\n <\/p>\n","protected":false},"excerpt":{"rendered":" Credit is the right to put off paying for something you get now.\u00a0 Credit almost always costs money.\u00a0 When you buy a car or a living room set in installment payments, you pay more than if you bought it for … Continue reading