§1606 Determination of Annual Percentage Rate

Summary

The Bureau says how to figure the annual percentage rate (APR) on consumer loans. For closed-end loans (like a car loan), APR must be the yearly rate that gives the finance charge when you apply it to unpaid balances using an actuarial method — payments go first to interest, then to principal — or a simpler Bureau-approved method that stays reasonably accurate. For open-end credit (like a credit card), APR is the finance charge for a billing period divided by the balance used to compute that charge, then multiplied by the number of those periods in a year. If the same finance charge applies to a range of balances, use the median balance unless the Bureau says to use another way. An APR disclosure is acceptable if it is within one-eighth of 1 percent above or below the true rate, or if it’s rounded to the nearest one-fourth of 1 percent; the Bureau can allow larger tolerances for irregular payments. The Bureau can also allow rate tables or charts that differ by up to 8 percent of the computed rate (or more for irregular payments) and can set other reasonable tolerances for other methods.