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Simple English definitions for legal terms
open-ended loan
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A quick definition of open-ended loan:
An open-ended loan is a type of loan that doesn't have a specific end date. This means that you can borrow money up to a certain limit, pay it back, and then borrow again. Examples of open-ended loans include credit cards and lines of credit. When you borrow money, you'll need to pay interest on it. Credit cards and lines of credit are based on your credit score, which is a number that shows how good you are at paying back money you borrow.
A more thorough explanation:
An open-ended loan is a type of loan that does not have a specific end date. This means that the borrower can continue to borrow money as long as they meet the terms of the loan agreement. Examples of open-ended loans include:
- Line of Credit: This is an agreement between a borrower and a financial institution. The borrower is pre-approved to take out funds up to a certain dollar limit. The borrower can use the money and pay it back, and then use it again up to the dollar limit. The institution will require interest payments to be made on the funds drawn. Sometimes, collateral is required for this type of loan.
- Credit Card: This is an agreement between a borrower and a financial institution. The borrower is allowed to borrow funds up to a pre-approved dollar limit. The borrowed money must be paid back within a certain time period, otherwise interest accrues.
For example, if a borrower has a line of credit with a $10,000 limit, they can borrow up to $10,000 and pay it back. They can then borrow up to $10,000 again, and so on, as long as they continue to meet the terms of the loan agreement. Similarly, if a borrower has a credit card with a $5,000 limit, they can use the card to make purchases up to $5,000. They must pay back the borrowed money within a certain time period, or they will be charged interest.