What is the Difference Between Open-end Credit, and Closed-end Credit, and What Are the Costs Associated With Each?

What is the Difference Between Open-end Credit, and Closed-end Credit, and What Are the Costs Associated With Each?

Open-end credit allows borrowing repeatedly with consistent payments, whereas closed-end credit must be paid off by a specific date. Costs for both include fees and interest rates charged by the lender. Open-end credit offers ongoing borrowing flexibility, while closed-end credit has a fixed repayment timeline.

Open-end Credit

Open-end credit, or revolving credit, is a flexible loan where borrowers can access funds up to a predetermined limit without a fixed repayment end date. This type of credit, exemplified by credit cards and lines of credit, allows users to borrow, repay, and borrow again within their approved limit, offering ongoing financial flexibility.

Closed-end Credit

Closed-end credit provides a lump sum of money upfront for specific purposes, like buying a house or car. Borrowers must repay the loan, along with interest, by a set date. Unlike open-end credit, it has a fixed term and requires regular payments until the loan is paid off. Commonly offered by banks and credit unions.