Final answer:
The Truth-in-Lending Act (Regulation Z) requires the interest on a loan to be expressed as an Annual Percentage Rate (APR). This allows consumers to compare loan costs transparently, considering that ARMs can adjust with inflation.
Step-by-step explanation:
According to the guidelines outlined in the Truth-in-Lending Act (Regulation Z), it is required that the interest charged on a loan be expressed as an Annual Percentage Rate (APR). This ensures that borrowers receive fair and transparent information about the cost of their credit which allows for easy comparison between different loan products.
Adjustable-rate mortgages (ARMs) are a type of loan that may offer a lower initial interest rate but can vary with market conditions, such as inflation rates, which can result in a higher interest cost over time if inflation increases.