Stealth Wealth Are you under the radar?

There are pro’s and con’s of both open-end and closed-end loans.

First off let’s discuss closed-end loans. A closed-end loan is a loan for a specific purpose and for a fixed amount that is established at the beginning of the transaction, to repaid in one or more regular payments over a set term. One of the pro’s of this type of product is that it has a final payment date and the debt will be closed. A con of this type of product is that it is non-revolving and you have to apply for a new loan each time you need a little money. You’ll read about the ease of open-end loans below.

A couple of examples of closed-end loans are an auto loan and home mortgage

An open-end loan has a specified amount of credit available for use at the customer’s discretion; repayment ranges from interest only through minimum stated amounts to a percentage specified in the contract. This type of product has great flexibility when spending. Once this type of product is approved for a customer he/she can use the line when ever he/she wishes. An open-end can be paid off and then funds use the funds again without having to go to a lending to get more funds. Paying down a balance then being able to spend the money again without having to reapply is known as “Revolving”. A pro of this is obviously the flexibility and ease of use. A con is a person with not much financial responsibility having a line of credit and maxing out the line and only paying minimum payments. Contrary to what most people would think banks do not like lines of credit maxed out and just minimum payments being met. Although highly profitable for the bank, the customer could have one simple financial mishaps and not be able to pay down the line of credit. A person with a line of credit needs to have great financial responsibility.

A few examples of open-end loans are:
-Credit Cards
-Home Equity Lines Of Credit (HELOC)
-Commercial revolving line of credit

The easiest way to remember if a product is open-end or closed-end is to ask yourself “Is this revolving?”. If it is then it is open-end, if it isn’t then it’s closed-end.

*Taken from www.bankhunting.com