Closed-end credit is a type of credit that should be repaid in full amount by the end of the term, by a specified date. The repayment includes all the interests and financial charges agreed at the signing of the credit agreement. Closed-end credits include all kinds of
mortgage
A mortgage loan or simply mortgage (), in civil law jurisdicions known also as a hypothec loan, is a loan used either by purchasers of real property to raise funds to buy real estate, or by existing property owners to raise funds for any p ...
lending and
car loans
In finance, a loan is the lending of money by one or more individuals, organizations, or other entities to other individuals, organizations, etc. The recipient (i.e., the borrower) incurs a debt and is usually liable to pay interest on that de ...
.
Types
In case of mortgages the total is divided into monthly installments so that a person should repay certain amounts of principal plus interest. After the last repayment is made the right for the property is transferred to the borrower.
The same scheme refers to an auto loan. It is extended for a fixed period during which a person makes repayments. The latter also includes principal and interest and a borrower gains the right for a vehicle as soon as the final repayment is made. However, closed-end credits of auto type differ from the mortgage ones as they are considerably shorter and in the majority of cases have got fixed interest rates.
Features
The advantage of closed-end credits is that they allow a person to achieve good
credit score image, provided that all the repayments are made in time. Auto loans are especially beneficial in this respect. Successful management of a closed-end credit is a very demonstrative indicator for future lenders.
The peculiar feature of closed-end credits is that they preserve the same interest rate level and the loan principal is not increased after the disbursement of funds or after the partial repayment.
Opposed to closed-end credits there are also open-end credits that are also known as revolving credit
lines. The most widespread among them are credit card loans.
All the types of credits in the U.S. are regulated by the laws. One of them is The Truth in Lending Act (TILA).
It was implemented by the Board's Regulation Z (12 CFR Part 226) and is aimed at providing information and customer protection. It was introduced in order to spread information about all customer loans and to enforce lenders to adequately disclose information about terms and cost of a loan.
See also
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Mortgage loan
A mortgage loan or simply mortgage (), in civil law jurisdicions known also as a hypothec loan, is a loan used either by purchasers of real property to raise funds to buy real estate, or by existing property owners to raise funds for any pu ...
*
Credit score
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Title loan
A title loan (also known as a car title loan) is a type of secured loan where borrowers can use their vehicle title as collateral. Borrowers who get title loans must allow a lender to place a lien on their car title, and temporarily surrender the ...
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Guarantor loan
A guarantor loan is a type of unsecured loan that requires a guarantor to co-sign the credit agreement. A guarantor is a person who agrees to repay the borrower’s debt should the borrower default on agreed repayments. The guarantor is often a fa ...
References
[PART 226—TRUTH IN LENDING (REGULATION Z) Subpart C—CLOSED-END CREDIT "{{cite web
, url=http://www.fdic.gov/regulations/laws/rules/6500-1400.html
, title=FDIC: FDIC Law, Regulations, Related Acts - Consumer Protection
, accessdate=2006-08-29
, url-status=dead
, archiveurl=https://web.archive.org/web/20060902015953/http://www.fdic.gov/regulations/laws/rules/6500-1400.html
, archivedate=2006-09-02
"]
[Revolving Credit]
External links
Closed-end creditFacts for Consumers - MortgageOpen-end credit
Credit