What Is a Closed-End Loan

by Neil Kokemuller ; Updated July 27, 2017
A standard fixed-rate mortgage is a classic closed-end loan.

A closed-end loan is a common type of consumer loan where the repayment amount, length and terms are clearly spelled out in the upfront agreement. This loan contrasts open-ended loans, such as credit cards and lines of credit, where the interest rate, credit limit, terms and repayment amount can fluctuate over time.

Closed-End Loan Purpose

A closed-end loan allows both the lender and borrower to know the exact terms of the loan agreement from the start. These loans are common for major purchases, such as homes, cars and boats. Some also get a closed-end personal loan for debt consolidation. The closed-end loan has preplanned installments, so the monthly payment is constant throughout the repayment period.

Pros and Cons

The ability to budget a predictable payment is a major closed-end loan benefit. Interest rates are often lower and more constant as well. Revolving credit card interest rates are notoriously high. A primary drawback of closed-end loans relative to open loans is that they don't offer the same borrowing flexibility for changing needs.

About the Author

Neil Kokemuller has been an active business, finance and education writer and content media website developer since 2007. He has been a college marketing professor since 2004. Kokemuller has additional professional experience in marketing, retail and small business. He holds a Master of Business Administration from Iowa State University.

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