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?
Answer
D
Diego is correct because the loan has to be paid in full by a specific date.
S
Sienna is correct because she had to pledge collateral to get the loan.
S
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.
Explanation
Closed-end credit is borrowed as a set amount and repaid according to a schedule, with a specific payoff date. Sienna’s car loan has equal monthly payments for 48 months, so it must be paid off by the end of that term. Therefore, Diego is correct; collateral does not make the loan open-end credit, and the loan is not a line of credit.
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