Once you have finalized the negotiations, review all of the paperwork before signing the loan documents. The federal Truth in Lending Act (TILA) requires lenders to give you specific disclosures in writing about important terms before you are legally obligated under the loan. One purpose of TILA is to help consumers make apples-to-apples comparisons between loans. The important terms include:
- Annual Percentage Rate: the APR is the cost of credit expressed as a yearly rate in a percentage.
- Finance Charge: cost of credit expressed as a dollar amount (this is the total amount of interest and certain fees you will pay over the life of the loan if you make every payment when due).
- Amount Financed: the dollar amount of credit provided to you (this is normally the amount you are borrowing).
- Total of Payments: the sum of all the payments that you will have made at the end of the loan (this includes repayment of the principal amount of the loan plus all of the finance charges).
The TILA disclosure will also include other important terms such as the number of payments, the monthly payment, late fees, whether the loan has a fixed or variable rate, and whether you can prepay your loan without a penalty.
Take the time to review the details of your auto loan, and look over the paperwork. If there are things you don’t understand, ask questions. You are signing a contract and this is a major purchase, it is important that you understand what you are signing.