Truth In Lending (TIL) – Amount Financed Box

Today I received an eMail from a client asking “Can you explain why on the Truth In Lending disclosure it states my amount financed is lower than my loan amount?’

That is a great question.

Amount Financed.
The amount financed is the loan amount applied for less the prepaid finance charge.
Prepaid finance charges can be found on the Good Faith Estimate (GFE).
For example, if the you are Loan amount is $100,000 and the Prepaid Finance Charges total $5,000,
the amount financed would be $95,000. The $95,000 would also be reflective of the loan being paid off, or purchase sells price.
The amount financed is calculated by:

1. Determining the principal loan amount or the cash price (subtracting any down
payment;
2. Adding any other amounts that are financed by the credit and are not part of the
finance charge;
3. Subtracting any prepaid finance charge.

Calculation
Loan Amount		100,000
Prepaid Finance Charge	-	5,000
Amount Financed	=	95,00

Reference:
Regulation Z: Truth-in-Lending – Section 226.18b

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2 Responses to “Truth In Lending (TIL) – Amount Financed Box”

1. JR says:

   May 15, 2009 at 5:08 pm

   It would seem then given the above information-that: the reason for calling the amount financed different that the loan amount is because the borrower could opt to pay the prepaid finance charge in cash and not finace the PPaids. This formula is also a carry over of the discout loan (made in the old days not very often maded these days). This is where the lender actuall lends you a $100,000 but retains the $5,000 in interest thus the barrower only gets $95,000.
2. Chris says:

   July 7, 2009 at 12:59 pm

   Thanks for this.

   Though it would be helpful to define what is considered a “prepaid”.

   I am currently trying to plow through Regulation Z in order to find out the definition of it because there are some things you would think would be in there that aren’t.