Posted in Finance, Accounting and Economics Terms, Total Reads: 391
Definition: Open-End Credit
Open-End credit account is a type of loan account in which there is no restrictions on withdrawals and repayments. So you can withdraw from this loan account as many times as the need may be and make the re-payments according to your feasibility, but within a limit. So it is basically a pre-approved loan between the borrower and mostly a financial institution, this can be used by the borrower up to a pre-approved credit limit and the payments should be made before the due date. The pre-approved amount must be set out in the agreement between the two parties. SO here we understood about two open ended concepts, the open end credit cards and the open ended credit accounts.
This type of credit is also called as “line of credit” or “revolving line of credit” or “revolving account”. Open End credit between a borrower and a financial institution is in many ways advantages to the borrower, as they have more control in their hands over the times they can borrow and re-pay as well. Usually in this type credit facility, interest is not charged on the amount that is not used in a credit facility, so this leads to a interest savings to a borrower.
A Credit card as we know is a common example of this type of credit, so what is a credit card, it is basically a open ended credit from a financial institution to a borrower (holder of the credit card). So the card holder can use this credit card any number times at any merchant locations when he buys something. In this case the amount is billed to the financial institution and it is basically like borrower taking loan from the bank. The financial institution on a monthly basis gives final amount to the borrower, who needs to pay the amount within a specified amount of time.
Some of the other examples of open-ended credit are Home Equity credit lines, Department stores or services station credit cards and overdraft privilege on checking accounts.