In an open-end, or “revolving,” credit sale, the contractor enters into a relationship with a manufacturer, large retailer, or financial institution to offer the consumer access to a line of credit or private-label credit card with that third party. In a typical open-end credit sale, the contractor will complete a credit slip and credit charge application with the consumer when making the sale. The credit's considered open-ended because it allows the consumer to make additional purchases on the line of credit or credit card and to carry the debt for an open period of time, so long as the minimum payments are made. In technical terms, this means that the finance charge the consumer is paying can be computed from time to time on the outstanding unpaid balance, as with typical credit cards.

With direct closed-end credit, the customer is required to pay the debt off in regular payments, over a set period of time. Many contractors take advantage of direct loans offered by third-party lenders. Typically the contractor completes a credit application for the consumer and forwards it to the direct lender on the consumer's behalf. On occasion, the contractor may present the consumer with the lender's direct-loan paperwork for completion and submission to the lender with the credit application. Often the transaction takes the form of a consolidation loan, where the consumer has requested (or been offered) not just money to pay off the home improvement purchase, but money to pay off an automobile loan or credit cards, refinance a first or second mortgage, or obtain extra cash.

Note: Whether the contractor could potentially be liable to either the consumer or a credit provider for the financing terms depends on the structure of the transaction and the agreements the contractor enters into with the credit provider. —D.S. Berenson is the Washington, D.C., managing partner of Johanson Berenson LLP (, a national law firm specializing in the representation of contractors and the home improvement industry. He may be contacted at 703.759.1055 or

This article is for informational purposes only and should not be construed as legal advice.