open-ended loan

An open-ended loan is a loan from a financial institution, such as a bank, without a definite end date.

Examples of open-ended loans include lines of credit and credit cards. The terms of open-ended loans may be based on an individual’s credit score.

  1. A line of credit (LOC) refers to an agreement between financial institutions, such as banks, and a borrower, such as a government, corporation, or an individual, whereby the borrower is pre approved to take out funds up to a certain dollar limit without a fixed date for fully repaying the loan. Money that is paid back can be spent again up to this pre-established dollar limit. Lenders of this type of line of credit would consider borrowers’ credit history. The institution will also require interest payments to be made on the funds drawn. This type of instrument sometimes requires collateral (see secured debt). To set up a line of credit (LOC), a financial institution would charge a fee to cover the cost of application, as well as a monthly, quarterly, or annual fee to keep the line of credit (LOC) open. (See: Home Equity Loans and Home Equity Lines of Credit)
  2. Similar to a line of credit (LOC), a credit card is a credit facility based on an agreement between a financial institution and borrower, whereby borrowers are able to similarly borrow funds up to a preapproved dollar limit. Each month, a card holder must pay at least the minimum monthly payment required by the card issuer. To determine the credit limit, a series of criteria exist, including credit score, income, and occupation. The borrowed money must be paid back within a certain time period, otherwise interest accrues. With a good record of repayment, the amount of available credit could increase.

[Last reviewed in March of 2025 by the Wex Definitions Team]

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