Sienna has a car loan with an annual interest rate of 4 point 8 percent 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?
Answer
A
Sienna is correct because she had to pledge collateral to get the loan.
B
Diego is correct because the loan is a line of credit.
C
Diego is correct because the loan has to be paid in full by a specific date.
D
Sienna is correct because the amount can be borrowed again after she repays the loan.
Explanation
Closed-end credit is borrowed as a set amount and repaid over a defined period, usually with regular payments. Sienna’s car loan has monthly payments for 48 months and must be fully repaid at the end of that term, so Diego is correct. A line of credit that can be borrowed from again is open-end credit.
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