Question

which of the following types of credits would best describes home equity loans?
a. closed and secured
b. closed and unsecured
c. open and secured
d. open and unsecured

Explanation:

Analyze security of home equity loans

Using the Secured Loans knowledge point

A home equity loan is backed by the borrower's home as collateral. This means the lender has a legal claim to the property if the loan is not repaid, making it a secured form of credit.

Analyze credit structure of home equity loans

Using the Closed-End Credit knowledge point

A home equity loan provides a one-time lump sum of cash that is repaid over a fixed term with a fixed monthly payment. Because it has a specific repayment schedule and does not offer a revolving line of credit, it is classified as closed-end credit.

Combine classifications to select the best option

Using the Closed-End Credit and Secured Loans knowledge points

Combining these two characteristics, a home equity loan is best described as closed (closed-end) and secured. This corresponds to option (a).

Answer:

• a. closed and secured (Correct answer)
• b. closed and unsecured
• c. open and secured
• d. open and unsecured