Why Closed End Loans Are More Appealing
All of the features and benefits of a closed end loan will remain the same through the loan. Closed end loans are predictable when it comes to managing your finances.
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Features
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Closed end loans are more appealing because you know your payments won't change from month to month and this helps you budget your finances more effectively.
Maturity Date
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When you have a closed end loan you know exactly when your loan is going to be paid off. If you have an open end or revolving account you may not know when the loan will be paid off.
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Effects
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The interest rate is fixed on a closed end loan therefore the amount of finance charges you pay will not increase during the term of the loan. You don't have to worry about paying extra money as time passes.
Benefits
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You can compare two closed end loans. If you know the amount of the loan, interest rate, monthly payment and the number of months, you will be able to see how much you save with one closed end loan vs. another when the rates of interest are different for the two loans.
Function
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When you have a closed end loan, you cannot add more money to it. This keeps you from overextending yourself with too much debt. Once the loan is paid off, you have to apply all over again for another loan.
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