According to TILA, how should an interest rate be quoted to a consumer inquiring about a loan product?

When informing consumers about loan products, TILA (Truth in Lending Act) mandates that both the annual percentage rate (APR) and the nominal interest rate be provided. This approach ensures that consumers have a comprehensive understanding of the cost of credit.

The APR represents the total yearly cost of borrowing expressed as a percentage, including not only the interest charged but also any additional fees or costs associated with the loan. This gives consumers a clearer picture of what they will actually pay over the life of the loan. Meanwhile, providing the nominal interest rate offers a more straightforward view of the rate charged on the principal balance.

By presenting both the APR and the nominal interest rate, lenders help consumers compare different loan products effectively, promoting transparency and informed decision-making. This dual disclosure is a fundamental component of TILA’s objective to safeguard consumer rights and ensure they are not misled in financial transactions.