In tough economic times, consumers typically batten down the hatches and hold off making major purchases. But what if the roof leaks, or the car or washing machine sputters to a halt?

Buying on credit has been and will continue to be a key way for consumers to obtain the goods and services they need when they need them now but want to pay later. When you buy on credit, you have immediate access to the goods, but you pay later through installments.

The law provides a number of protections to consumers involved in the credit process. The federal Truth in Lending Act requires creditors to provide information that will help the consumer actually decide whether to buy on credit and if so, what terms may be best for the situation.

Before signing an installment contract, for example, you must receive specific information about the amount being financed, the number of monthly payments and the annual percentage rate (APR).

The APR is essentially the interest rate that the borrower will pay on the loan. Its intended purpose is to make it easier for a borrower to compare loan options, but the way they are stated can be tricky.

An annual interest rate of 10% can, for example, be expressed in several ways:

  • 0.7974% effective monthly interest rate
  • 9.569% annual interest rate compounded monthly
  • 9.091% annual rate in advance.

    While these rates are all equivalent, they can be confusing to the consumer.

    The Truth in Lending Act also regulates credit advertising. If an automobile ad emphasizes a low monthly payment of a specific amount, it must also include other information such as the APR.

    Before signing a contract, especially for a large purchase, it's advisable to check with an attorney.

    For further information about law-related issues, contact an Illinois State Bar Association member-lawyer in your area or visit

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