A lender offers a borrower a choice between paying discount points upfront or accepting a higher interest rate with a lender credit. The borrower chooses the lender credit option. For APR calculation purposes, how should the lender credit be treated?
Correct Answer
B) Subtracted from the finance charge as a negative finance charge
Under Regulation Z, lender credits that offset borrower costs are treated as negative finance charges and reduce the total finance charge used in APR calculations. This reflects the actual cost reduction to the borrower.
Why This Is the Correct Answer
Under Regulation Z, lender credits that offset borrower costs are treated as negative finance charges and reduce the total finance charge used in APR calculations. This reflects the actual cost reduction to the borrower.
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