Truth in Lending (Regulation Z) Purpose and Application Practice Exam

Open-End Credit, often referred to as revolving credit, is characterized by allowing borrowers to borrow, repay, and borrow again on an ongoing basis, up to a certain credit limit. This flexibility enables consumers to manage their debt and spending according to their needs. It includes credit facilities such as credit cards, home equity lines of credit, and personal lines of credit.

The feature of ongoing borrowing and repayment is what distinguishes open-end credit from closed-end credit, which is typically disbursed in one lump sum and repaid in fixed installments over time. This is why C is the correct answer, as it accurately reflects the nature of open-end credit.

In contrast to fixed repayment plans associated with closed-end credit, open-end credit structures are designed for continual access to funds, making them particularly useful for expenses that may vary month to month. This adaptability is beneficial for managing cash flow and provides borrowers with the option to pay off the balance in full or carry a balance month to month, depending on their financial situation.