Definition of "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.

image of a real estate dictionary page

Have a question or comment?

We're here to help.

*** Your email address will remain confidential.
 

 

Popular Real Estate Terms

Is a wholly owned government corporation administered by the Department of Housing and Urban Development. It does not by mortgages; it issues pass-through securities in which interest and ...

Tax-free status given to certain nonprofit organizations and governmental entities. Churches, charities, and government buildings do not pay property tax because of their tax-free status. ...

Decline in value of real estate property because it is near something which is damaging to its worth. For example, a house located next to a pollution treatment center, drug center, or ...

Supports a structure. ...

real property located in a metropolitan, heavily populated area. ...

Selling lots of land for such reasons as building structure on them including homes, office buildings, and shopping centers. ...

Not attached to any parcel of land but merely a personal right to use the land of another. ...

Expected selling price of property less costs to sell. It is the net amount received upon the sale of property. gross receivables less allowance for doubtful accounts, representing the ...

Grouping of several columns arranged in intervals supporting an architectural overhang, usually a roof. ...

Popular Real Estate Questions