How is the premium determined for open-end transactions?

The premium for open-end transactions is determined by having it calculated monthly and added to the minimum payment due. Open-end credit often allows borrowers to obtain funds as needed, up to a certain limit, and because it provides ongoing access to credit, the premiums need to be structured in a way that aligns with the borrower's usage of the credit.

This method also helps borrowers manage their payments by integrating the premium into their regular payment schedule. By incorporating the premium into the minimum payment, it simplifies the billing process for the borrower, ensuring that they are reminded of this recurring cost along with their principal credit obligations.

In contrast, determining the premium monthly based on income could create complexities and add variability that is not typical in open-end credit situations. Calculating the premium annually may not accurately reflect the timing of credit use or payment cycles inherent in open-end transactions. Finally, collecting the premium at closing does not align with the nature of open-end agreements, where the ongoing access to credit means that premiums need to be managed continuously rather than dealt with as a one-time payment at the outset.