QandAs: Loans

What is an Open End Credit Agreement?

Answer:
An open end credit agreement is a common type

of credit used by most consumers. This type of agreement permits borrowers to acquire a specific amount of money from a bank or lender. Once the borrower repays the funds, he or she is permitted to borrow additional funds. In turn, consumers are billed for the borrowed amount plus interest.

Open end credit agreements are essentially revolving credit accounts. These include credit card accounts and lines of credit (personal and home equity). Both types of agreements share a few similarities. However, there are also noted differences.

The easiest type of open end credit agreement to acquire is a credit card. The application process is relatively simple, and persons with bad credit can qualify for secured credit cards, which can help improve a low credit score. On the downside, credit cards typically involve high interest rates and expensive penalties.

Personal and home equity lines of credit have lower rates. However, getting approved for such agreements isn’t easy. Good credit is required with a personal line of credit, and applicants will need collateral. Similarly, to qualify for a home equity line of credit, borrowers must own a home and have ample equity to secure the account.


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