What is the difference between open-end credit, and closed-end credit, and what are the costs associated with each?
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Answer:
THE DIFFERENCE BETWEEN CLOSED-END & OPEN-END CREDIT
To the average consumer, the world of loans, mortgages, and financing can be confusing and stressful. As a broker, it’s important to understand the difference between the different types of credit and their associated loans so you can advise your borrowers on their best path towards homeownership.
CLOSED-END CREDIT
Closed-end credit is a type of loan where the borrower receives the sum upfront and is required to pay back the loan at the end of a set timeframe. The amount owed also includes any interest or maintenance fees accrued throughout the duration. Closed-end credit loans will allow for a large sum of money to be lent out at once.
OPEN-END CREDIT
Open-end credit is commonly referred to as revolving lines of credit, and are structured as a pre-approved lending limit with no fixed time for it to end or lapse. Borrowers are free to repay the balance before the payments are due, and are generally much smaller than closed-end loans. In the US, closed-end mortgages are much more common.