Open-End Loan
When we discuss loans, it is essential to know that there can be many types of loans and there also are open-end loans and closed-end loans. In regards to closed-end loans, these often work in installments for a specific amount of money. A frequently used closed-end loan is a loan for purchasing a car. The amount of the money borrowed is fixed, and the borrower pays it back in installment to the financing company.
An open-end loan is a more circular type of loan. Its circularity makes it more manageable as it doesn’t have an end date. You get the open-end loan, use the money you need, pay it back when you can, and you can reuse it when the balance shows that you have money on it. Let’s give an example of an open-end loan: you take $10,000 on an open-end loan. You use $8,000 of it, repay $5,000 of it in the next couple of months, then your balance will show $7,000—this is money you can use again, and then the wheel keeps turning. Another open-end loan definition would be to say that it’s a revolving line of credit because the credit keeps revolving with your use of it—this revolving line of credit, like a credit card or home equity line of credit.
An open-end loan allows you to use a certain amount of money, called the credit limit. The borrower does not need to use all the credit simultaneously; you take out as much as you need. Once you cover that amount, the funds still available are at your disposal for later use. There are two types of open-end loans, and we’ll take a look at what makes them different.
Open-End Unsecured
A line of credit that is unsecured makes it free from any collateral. An unsecured open-end loan is, first and foremost, based on your creditworthiness. Because it doesn’t have collateral attached to it that the financial institution can claim if the borrower does not meet the installments, the lenders take into account the creditworthiness of the borrower. The same creditworthiness can affect the credit limit. The more creditworthy the borrower, the higher the approved credit limit would be.
Open-end Secured
As this is a secure line of credit, it means that it has collateral. It can either be attached to a piece of collateral or secured by it. For this type of open-end credit, the lending company pays attention to the creditworthiness and the value of the collateral. Generally, the credit limit of a secure open-end credit is equal to the deposit the borrower has with the lending financial institution. It’s important to know that, unlike the unsecured open-end loan, failure to repay a secure open-end loan can affect your creditworthiness as well as a loss of the collateral.
Popular Real Estate Terms
income statement destroyed by a casualty such as a fire. This requires the reconstruction of the income statement based on source records, information, and documents. Income statement ...
Marketable title that is free of encumbrances and disputed interests. Clear title is essential in order to convey a general warranty deed in a transaction. ...
Process of simultaneously appraising several pieces of property. Normally, occurs when a local government conducts a reassessment. ...
Lienholder's statement as to the unpaid balance on a trust deed note. ...
Written document by an official granting agency and signed by an empowered official certifying that some specific act including the fulfillment of certain requirements has occurred on a ...
Opinion of a judge having no direct legal or binding effect on the outcome of a pending judicial decision. An obiter dictum is considered to be an incidental judicial remark about some ...
Loan in which two or more lenders participate in the total financing of a single mortgage. The lenders in a piggyback loan do not necessarily have equal shares. ...
Judicial order prohibiting a person or business from doing something. The court may issue this dictate when unlawful conduct or activity is occurring. ...
See annuity due. ...
Have a question or comment?
We're here to help.