Question

Sienna has a car loan with an annual interest rate of 4.8%. She will make the same monthly payment for 48 months, after which the loan will be paid back. Diego says that Sienna’s loan is an example of closed-end credit while Sienna says it is an example of open-end credit. Which statement about the loan is true?

Answer 1

Answer: Sienna’s loan is an example of closed-end credit

Step-by-step explanation: The main difference between closed-end credit and open-end credit is in the terms of the debt and its repayment.

Open-end credit are loans taken which are not restricted to a specific use or duration i.e the banks allows it's customers to take loans without a specific or set duration during which it most be paid back, the customer just have to promise that they will back back on time. Credit card accounts and debit cards are a good example of open-credit.

On the other hand, a close-end credit are loans taken by individuals or business for a particular period as specified, during which the individual or business is required to make regular payments. At the end of the set period the individual or business is required to pay back the entire loan, interest fee and maintenance fee. Mortgage and car loans are a good example of closed-end credit.

So Diego's statement is the correct statement; Sienna’s loan is an example of closed-end credit