Closed-end credit – if you’ve never heard of them before, it’s a loan where the money is given out completely when the loan is made and must be paid back in full along with any finance charges and interest by a particular date or time.
How is one approved for a closed-end credit? You must have a particular income level and an established credit history, along with assets, equity or collateral. The loan terms may include intermittent loan repayments or the whole payment amount including the interest. Examples of closed-end credit are:
Examples of open-end credit are home equity line of credit and credit cards.
In order to get a closed-end credit loan, you need to provide the bank with some kind of collateral. A home can secure a home equity loan or mortgage. Your car can be the collateral for a car loan.
The collateral is security for the loan. Banks will normally hand out just 80 percent of a home’s value when you make a home equity loan or mortgage. A home’s appraisal will determine what the real estate’s percent value is.
The main requirement to attain a closed-end credit is your ability to pay the loan back. Lenders will look at your monthly income and bills to figure out if you can make the payments. They’ll also look at your credit history and current score. If you have excellent credit history and high credit score, chances are you’ll be granted a loan term that works for you – reduced interest rate.
They may also look at your net worth and existing assets. People with a plethora of assets are not considered a high-risk venture.