Every Fee "Affects" the APR

When gathering information to define software, one of the critical areas for accurate disclosure is determining the nature of any fees that will be charged by the lender. A really popular industry description of specific fees is that "this fee affects the APR".

It's become clear that statement is intended to mean that a fee will "make the APR a different value than the interest rate" (Reference The Interest Rate and the APR post).  From our consumer credit math purist standpoint, every fee "affects" the APR.

All fees in a lending transaction are either in the Amount Financed (Truth in Lending Act definition) or the Finance Charge (also TILA defined).  The sum of the AF + FC equals the Total of Payments.  As a general rule, the AF and FC are mutually exclusive and collectively exhaustive.  Fees are either in one or the other but they can't be in both.

Consequently, a fee that is included in the TILA Amount Financed does indeed affect the APR calculation since the APR measures the relationship of the Amount Financed to the Finance Charge over the time period of the loan.

So, our goal in defining software projects is to help clients determine which fees can potentially be required to be in the TILA finance charge.