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?

a) Diego is correct because the loan has to be paid in full by a specific date.
b) Sienna is correct because she had to pledge collateral to get the loan.
c) Sienna is correct because the amount can be borrowed again after she repays the loan.
d) Diego is correct because the loan is a line of credit.

Answer 1

-Diego is correct because the loan has to be paid in full by a specific date.

Step-by-step explanation:

Closed-end-credit is a type of credit where a fixed amount is borrowed and must be repaid in full by the end of a specified period. The amounts to be paid back are the principal and the interests. Sienna took a closed-end-credit because her loan was issued at a go, and she had to repay after 48 months.

Open-end credit is like a revolving fund. The borrower is allowed credit up to a specific limit. Once they make repayments, they can re-access the facility.