What is a defining characteristic of closed-end credit?

A defining characteristic of closed-end credit is that the loan has a fixed repayment schedule and a set principal amount. This means that when a borrower takes out a closed-end loan, such as a mortgage or a car loan, they receive a specific amount of money upfront and must repay it in regular installments over a predetermined period. The total amount borrowed is not subject to change, and the borrower cannot draw additional funds once the loan is issued. Instead, the repayment terms are clearly defined from the outset, which provides the borrower with a clear understanding of how much they will pay each month and when the loan will be fully repaid.

This fixed structure of closed-end credit stands in contrast to open-end credit, where the borrower can access funds repeatedly within a set limit, allowing for more flexibility in borrowing and repayment. Understanding this key difference helps distinguish between types of credit and their respective repayment mechanics.