What type of loan is typically NOT classified as closed-end credit?

Study for the Truth in Lending (Regulation Z) Test. Prepare with flashcards and multiple choice questions, each with hints and explanations. Master your exam!

Multiple Choice

What type of loan is typically NOT classified as closed-end credit?

Explanation:
The correct choice identifies HELOCs, or Home Equity Lines of Credit, as not being classified as closed-end credit. Closed-end credit refers to loans that provide a fixed amount of credit that must be repaid over a specified term, typically in regular payments. Once the loan is paid off, it cannot be reused without applying for a new loan. In contrast, HELOCs are revolving forms of credit secured by the equity in your home. Similar to credit cards, they allow borrowers to draw funds as needed, up to a certain limit, and to repay and borrow again during a draw period. This flexibility in borrowing and repayment is what distinguishes HELOCs from closed-end credits like fixed-rate mortgages, automobile loans, and home improvement loans, which provide a specific sum upfront and require repayment according to a set schedule without the possibility of re-borrowing once the loan is paid off.

The correct choice identifies HELOCs, or Home Equity Lines of Credit, as not being classified as closed-end credit. Closed-end credit refers to loans that provide a fixed amount of credit that must be repaid over a specified term, typically in regular payments. Once the loan is paid off, it cannot be reused without applying for a new loan.

In contrast, HELOCs are revolving forms of credit secured by the equity in your home. Similar to credit cards, they allow borrowers to draw funds as needed, up to a certain limit, and to repay and borrow again during a draw period. This flexibility in borrowing and repayment is what distinguishes HELOCs from closed-end credits like fixed-rate mortgages, automobile loans, and home improvement loans, which provide a specific sum upfront and require repayment according to a set schedule without the possibility of re-borrowing once the loan is paid off.

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