Final answer:
APR tolerance level allows for a slight discrepancy between the disclosed and actual APR, up to 0.125% for regular transactions and up to 0.25% for irregular transactions, as per regulations like the Truth in Lending Act.
Step-by-step explanation:
When providing a fixed rate loan to a borrower, the lender is allowed a slight error in the disclosed Annual Percentage Rate (APR). This is known as the APR tolerance level, which allows for discrepancies between the disclosed and actual rate.
For a fixed-rate home loan, the allowable tolerance is generally set by regulation, such as under the Truth in Lending Act (TILA) in the United States, which permits a tolerance of up to 1/8 of one percentage point (0.125%) for regular transactions and 1/4 of one percentage point (0.25%) for irregular transactions.
The purpose of this tolerance is to account for minor miscalculations or rounding errors that may occur when the APR is calculated and disclosed to the borrower.