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It is the yearly amount a consumer must pay for acquiring a loan or other type of credit. Lending law requires that all lender clearly disclose the APR in all promotional material through which lenders seek clients.
This loan and cost disclosure is called the Truth in Lending Act. It was legislated in 1968 as a part of consumer protection act. Subsequently, it was revised and made simplified. The basic goal of this act was to express clearly to consumer the cost of availing loan so that the prospective borrower can compare and go for a loan which is most suitable for him.
However, though lenders disclose APR only for the sake of fulfilling a legal formality. At time the method of expressing APR makes it difficult for consumers to find out actual cost.
Though APRs is used to compare loans and determine the least expensive credit products, APR is also confusing at time.
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