QandAs: Loans

What is Truth in Lending?

Answer:
Truth in Lending (TIL) is a law that obligates creditors to fully disclose the terms of a loan. It

is important for borrowers to understand the terms of a mortgage or personal loan before signing the documents. To protect consumers from dishonest lenders, Congress passed the Truth in Lending Act in 1969, and this law has helped millions of consumers make informed decisions.

If applying for a home loan, mortgage lenders are required to provide borrowers with a Truth and Lending statement within three days of loan approval. This statement, also known as the good faith estimate, presents detailed loan information. Borrowers use the statement to make loan comparisons, which enables them to choose the best mortgage offer.

Loan information disclosed within the Truth and Lending statement pertains to finance charges, annual percentage rate (APR), payment schedules, loan term, prepayment penalties, and late fees. Borrowers who choose an adjustable rate or interest only mortgage should carefully read their TIL statement. In this instance, the statement will include details related to the maximum interest rate that lenders can charge a borrower. The best feature connected to Truth in Lending is the borrower’s right to cancel the loan agreement within three business days without penalty.


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