Closed-End Credit vs Open-End Credit 5115

Personal Finance, presentation close and credit versus opened and credit, prepare to get financially fit by practicing personal finance. two basic types of consumer credit remembering when we’re thinking about credit, we’re thinking about financing, we’re thinking about loans, we’re thinking about personal loans personal financing, the two types being closed and credit opened in credit. These are going to be broad type of categories that loans can generally fall into starting with the closed end credit, which is a loan or type of credit where the funds are disbursed in full when the loan closes and must be paid back interest and finance charges by a specific date.


So this is kind of a more formalized type of loan, where you’re going to be coming up to the agreement, usually on the purchase of something that’s larger, such as a home or a car or something like that, usually setting up some type of installment loan for the personal loan. So once again, let’s read it one more time, a loan or type of credit, where the funds are dispersed and full.



So the funds are going out in full when the loan closes, meaning you’re either receiving the funds if you’re getting the funds, or they’re going to the goods or services that are being purchased when the loan closes, meaning once you’ve kind of set up the terms of the loan, and must be paid back interest and finance charges by specific date. So clearly, you’re going to be charged for the loan for the purchasing of the loan, or the purchasing power that you’re getting of the money that’s being loaned to you,



that’s kind of the rent on the purchasing power, that’s the interest, then we have the financing charges to set up the loan, those are going to be the costs of the loan, which in terms of this type of closed end loan will be agreed agreed upon upfront, and then we’ll be able to know exactly what’s going to go on because it will be in the terms of the loan in the future. So may may also be called an installment loan or secured loan. So usually these types of loans are for larger types of purchases, most of the time for personal it’s going to be in the form of is pretty standard installment type of loan, which usually is set up so that you make a set monthly payments.



And it could also be called a secured loan, which could mean that you have something securing the loan, which could be whatever you’re purchasing with the loan or using the money to help you purchase, which might be like an automobile or a home or something like that. So in other words, an installment loan and secured loan are other terms commonly used, which are types of the closed end credit. So closing credit agreements often allow borrowers to buy expensive items like a house, a car, boat, furniture or appliances.



So if you’re buying a large type of item, oftentimes the closing credits going to be useful because it will allow you to come up with those terms and lock in the terms at this point in time, as opposed to something like credit card or something like that, which good once you have the debt involved have you know changes that are going to be happening over time. So the closing credit, usually installment agreements will be happening with the larger purchases typically.



So then we have the open end credit, which is a pre approved loan granted by a financial institution to a borrower that can be used repeatedly. So now we have this pre approved format that allows us a lot more flexibility to take on in essence alone when we want to rather than basically having to sit down for a particular person’s purchase and get approved for a particular type of loan to be set up in a particular way as we would typically do for a larger type of purchase.



So with open end loans like credit cards, once the borrower has started to pay back the balance, they can choose to take out the funds again. In other words, it is a revolving loan. So obviously the benefit there would then be the flexibility you could start to pay back the amount and then of course you can take it out again you have that revolving loan ability, the difference between close and credit is based on how the loan is provided to the borrower and whether or not the borrower can take the funds out again.

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