Which of the following options is considered an example of closed-end credit?

Which of the following options is considered an example of closed-end credit?

• A. Credit cards
• B. Automobile loans
• C. Revolving credit plans
• D. Home Equity Lines of Credit (HELOCs)

Answer: (B)

Closed-end credit refers to a type of loan where the borrower receives a specific amount of funds upfront and agrees to repay the loan in equal installments over a predetermined period. This type of credit is typically used for financing large purchases where the borrower knows the total cost and duration for repayment. Automobile loans serve as a prime example of closed-end credit because they involve borrowing a fixed sum of money specifically for purchasing a vehicle. The loan amount, interest rate, and repayment schedule are established at the outset, typically resulting in a set number of payments over the life of the loan until the debt is fully repaid. In contrast, other options such as credit cards, revolving credit plans, and home equity lines of credit allow for borrowing and repayment in a more flexible manner, where the borrower can continually borrow up to a certain credit limit, drawing down and paying off the balance as needed. These forms of credit can change in terms of how much is owed, making them examples of open-end credit rather than closed-end credit.

Closed-end credit refers to a type of loan where the borrower receives a specific amount of funds upfront and agrees to repay the loan in equal installments over a predetermined period. This type of credit is typically used for financing large purchases where the borrower knows the total cost and duration for repayment.

Automobile loans serve as a prime example of closed-end credit because they involve borrowing a fixed sum of money specifically for purchasing a vehicle. The loan amount, interest rate, and repayment schedule are established at the outset, typically resulting in a set number of payments over the life of the loan until the debt is fully repaid.

In contrast, other options such as credit cards, revolving credit plans, and home equity lines of credit allow for borrowing and repayment in a more flexible manner, where the borrower can continually borrow up to a certain credit limit, drawing down and paying off the balance as needed. These forms of credit can change in terms of how much is owed, making them examples of open-end credit rather than closed-end credit.