Under the Truth-in-Lending Act (TILA), the term refinance applies to which of the following?

Under the Truth-in-Lending Act (TILA), the term refinance applies to which of the following?

• A. A reduction in annual percentage rate
• B. A change in a payment schedule
• C. The satisfaction of an existing obligation and its replacement by a new obligation
• D. The renewal of a single payment obligation with no change in the original terms

Answer: (C)

A refinance under TILA occurs when the existing debt is paid off and replaced by a new obligation. This means the old loan is satisfied and a new loan agreement is created to take its place, even if the new loan has the same lender or similar terms. Because a new contract is formed, this triggers the disclosure and timing rules as a fresh credit transaction. That’s why replacing the old obligation with a new loan is the best answer. Merely lowering the APR or changing the payment schedule doesn’t create a new loan contract; it’s a modification to the existing obligation. And renewing a single payment obligation without changing its terms isn’t a replacement of the old debt with a new one. The defining feature of refinancing is the creation of a new loan to pay off the old one.

A refinance under TILA occurs when the existing debt is paid off and replaced by a new obligation. This means the old loan is satisfied and a new loan agreement is created to take its place, even if the new loan has the same lender or similar terms. Because a new contract is formed, this triggers the disclosure and timing rules as a fresh credit transaction.

That’s why replacing the old obligation with a new loan is the best answer. Merely lowering the APR or changing the payment schedule doesn’t create a new loan contract; it’s a modification to the existing obligation. And renewing a single payment obligation without changing its terms isn’t a replacement of the old debt with a new one. The defining feature of refinancing is the creation of a new loan to pay off the old one.