March 4-10, 2018 is the Federal Trade Commission’s National Consumer Protection Week! In honor of such, we’ve come up with several consumer-related topics of interest. After all, we are all consumers.
Whether you got a loan from your bank or you plan on executing a retail installment contract with your dealer, you must know to look for or learn to ask for a Truth-in-Lending disclosure when you finance a car.
What is the difference between a loan and a retail installment contract?
A loan is a transaction between you and a bank (or another lender) for money, where you use the money to purchase a vehicle and agree to repay the loan balance plus interest.
A retail installment contract is a transaction between you and the auto dealer to purchase a vehicle where you agree to pay the dealer over time, paying both the value of the vehicle plus interest. A dealer could sell the retail installment sales contract to a lender or other party.
What is a Truth-in-Lending disclosure?
The federal Truth-in-Lending Act or “TILA” requires that borrowers receive written disclosures about important terms of credit BEFORE they are legally bound to pay a loan or retail installment contract.
These terms include:
- APR (Annual Percentage Rate): The APR is the cost/ the amount (in percentage form) that you are paying for the credit you are taking to purchase your vehicle.
- Finance Charge: This is the cost of credit expressed in a dollar amount over the life of the loan/retail installment contract. Basically, this is your APR multiplied by the number of years of our loan (term of your loan).
- Amount Financed: This is the dollar amount of credit you are accepting. (The amount you are borrowing to purchase your vehicle.)
- Total Number of Payments: The sum of all payments that you will make by the end of the loan/retail installment contract term. (Principal + finance charges + other fees)
TILA disclosures also tell you the amount of your monthly payment, late fees and when they are accessed, rules regarding prepayment of the loan/retail installment contract, as well as other important things.
Where can I find this TILA disclosure?
It is often provided as part of your loan contract. If/when you ask for it, you may be handed a large stack of paper, the entire sales contract. YOU SHOULD REVIEW ALL OF IT. You should always ask to see your TILA disclosure BEFORE you sign your loan/retail installment contract.
Lone Star Legal Aid is a 501(c)(3) nonprofit law firm focused on advocacy on behalf of low-income and underserved populations. Lone Star Legal Aid serves the millions of people at 125% of federal poverty guidelines that reside in 72 counties in the eastern and Gulf Coast regions of Texas, and also 4 counties of southwest Arkansas. Lone Star Legal Aid focuses its resources on maintaining, enhancing, and protecting income and economic stability; preserving housing; improving outcomes for children; establishing and sustaining family safety and stability, health and well‐being; and assisting populations with special vulnerabilities, such as those who have disabilities, or who are elderly, homeless, or have limited English language skills. To learn more about Lone Star Legal Aid, visit our website at www.lonestarlegal.org. To apply for assistance with Lone Star Legal Aid, call 1- (800) 733-8394.