finance Finance refers to monetary resources and to the study and Academic discipline, discipline of money, currency, assets and Liability (financial accounting), liabilities. As a subject of study, is a field of Business administration, Business Admin ...

, closed-end credit is a type of

credit Credit (from Latin verb ''credit'', meaning "one believes") is the trust which allows one party to provide money or resources to another party wherein the second party does not reimburse the first party immediately (thereby generating a debt) ...

that should be repaid in full amount by the end of the term, by a specified date. The repayment includes all the

interest In finance and economics, interest is payment from a debtor or deposit-taking financial institution to a lender or depositor of an amount above repayment of the principal sum (that is, the amount borrowed), at a particular rate. It is distinct f ...

s and financial charges agreed at the signing of the credit agreement. Closed-end credits include all kinds of

mortgage A mortgage loan or simply mortgage (), in civil law (legal system), civil law jurisdictions known also as a hypothec loan, is a loan used either by purchasers of real property to raise funds to buy real estate, or by existing property owners t ...

lending and car loans.

Types

In case of mortgages the total is divided into monthly installments so that a person should repay certain amounts of principal plus interest. After the last repayment is made the right for the property is transferred to the borrower. The same scheme refers to an auto loan. It is extended for a fixed period during which a person makes repayments. The latter also includes principal and interest and a borrower gains the right for a vehicle as soon as the final repayment is made. However, closed-end credits of auto type differ from the mortgage ones as they are considerably shorter and in the majority of cases have got fixed interest rates.

Features

The advantage of closed-end credits is that they allow a person to achieve good

credit score A credit score is a numerical expression based on a level analysis of a person's credit files, to represent the creditworthiness of an individual. A credit score is primarily based on a credit report, information typically sourced from credit bu ...

image, provided that all the repayments are made in time. Auto loans are especially beneficial in this respect. Successful management of a closed-end credit is a very demonstrative indicator for future lenders. The peculiar feature of closed-end credits is that they preserve the same interest rate level and the loan principal is not increased after the disbursement of funds or after the partial repayment. Opposed to closed-end credits there are also open-end credits that are also known as revolving credit lines. The most widespread among them are credit card loans. All the types of credits in the U.S. are regulated by the laws. One of them is The Truth in Lending Act (TILA). It was implemented by the Board's Regulation Z (12 CFR Part 226) and is aimed at providing information and customer protection. It was introduced in order to spread information about all customer loans and to enforce lenders to adequately disclose information about terms and cost of a loan.

References

PART 226—TRUTH IN LENDING (REGULATION Z) Subpart C—CLOSED-END CREDIT "{{cite web , url=http://www.fdic.gov/regulations/laws/rules/6500-1400.html , title=FDIC: FDIC Law, Regulations, Related Acts - Consumer Protection , accessdate=2006-08-29 , url-status=dead , archiveurl=https://web.archive.org/web/20060902015953/http://www.fdic.gov/regulations/laws/rules/6500-1400.html , archivedate=2006-09-02 " Revolving Credit

External links

Closed-end credit

Facts for Consumers - Mortgage

Open-end credit
Credit

Types

Features

See also

References

External links