What is a Closed-End Loan?

One of many loan products offered by lenders, a closed-end loan is a loan that is paid to the borrower in a lump sum of money to be re-paid in full within a specified time frame. An example of a closed-end loan is a mortgage loan. A closed-end loan is also known as an installment loan by traditional lenders.

Payments on a Closed-End Loan

When you borrow money with a closed-end loan, you are agreeing to make installment payments, which include principle and interest divided in equal amounts and applied to a repayment schedule. Once the borrower makes the final loan payment to the lender, the loan is closed out and no additional money can be borrowed against that loan, nor are any additional payments given to the lender after the loan maturity date.

What to Consider

When taking out a closed-end loan, pay attention to the interest rate and the total amount you are actually required to pay back. The terms and conditions of a closed-end loan are usually such that there are additional charges applied when payments are not made on time. Therefore, it is important to read all of the fine print before signing on the dotted line.