The Truth in Lending Act, Explained

We are all aware of how mortgage loan works. We apply for the loan, we get the needed amount and we pay it. Although this is the general idea of how loans work, there are more underlying information that borrowers need to know, most of which are complex. Knowing the essential information will help borrowers make the right decision. This will also aid them in choosing the type of financing that works best for them. This is where the Truth In Lending Act or TILA comes in.

What is TILA?

This is a federal law enacted in 1968. Its main purpose is to keep borrowers informed about the consumer credit. The lender must disclose information about how much it will cost the borrower to take on the loan. The mortgage terms should be explained thoroughly as well. The law sets a uniform disclosure of the costs and fees charged by the lenders so that the borrowers can compare and choose the lender that is most suitable for their financial needs.

The TILA is a subsection of the Consumer Protection Act. Thus, its major purpose is to protect the consumers. Although there are a lot of big companies who are doing honest business, there are also opportunists and less reputable lenders who are out to take advantage of the borrowers. This is such law is formulated, to ensure that consumers are protected from misconception and confusion brought by such lenders.

Some of the disclosures required by the Truth In Lending Act is the identity of the creditor. The total amount that was lent the APR or the annual percentage rate and the charges and fees included in the mortgage. The borrower can file a lawsuit if he discovers any violation of the TILA unless the lender corrects it within sixty days after the error was discovered. Certain processes and investigation are followed during the filing of the lawsuit as well.

The Benefits of the TILA:

The TILA can help all consumers who are need of mortgage loan. What makes TILA so helpful is that it is able to make various lenders to present their data in the same manner. This alone will prevent confusion for the consumers. It will be easier for them to compare the different offers received from different lenders. Further, this means that the TILA does not mandate how much the lenders should charge for annual or monthly interest rate. It does not influence the lenders how much it should lend and to whom it lends the money.

In addition to that, the TILA also protects the consumers from fraud. This includes misleading the consumers or influencing them in making decisions about the concerned products or services. The party involved will be liable if the damaged it caused is material or substantial, which is not compensated by the benefits the consumer gets from the transaction.

It is important to know your right as a consumer when applying for a mortgage or when refinancing your existing loan. Knowing the essential information will help the consumers choose the best mortgage term for them. This will also enable them to assert their rights when using their credit.

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