Under Regulation Z, what must be included in the total cost of borrowing?

The total cost of borrowing under Regulation Z includes the principal amount, the interest, and any additional fees or charges associated with the loan. This comprehensive scope is essential for providing borrowers with a clear understanding of the actual costs they will incur over the life of the loan. By including all these components, Regulation Z ensures transparency and helps consumers make informed decisions about their borrowing options.

This approach also means that any fees or costs that are required to secure the loan, such as origination fees, points, and any other related charges, must be accounted for in the calculation. Consequently, this inclusion allows for an accurate annual percentage rate (APR) to be communicated, which presents the true cost of borrowing in a standardized way that can be easily compared across different loan products. Having only the interest rate, just the principal amounts, or fees over a specific threshold like $100 does not give a holistic view of the total borrowing costs, which is why those options do not align with the requirements of Regulation Z.