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Last update - 01:38 28/11/2008 What is the difference between a loan and a line of credit? By Tal Levy Beyond their well-known role of issuing credit cards, the credit card companies also function as a lending institution for customers of all the banks. There is a fine distinction between a loan and an LOC. They are based on the same credit score mechanism, and the main difference is the sums offered. An all-purpose, or express loan is deposited in the borrower's current account, while an LOC is a different story. Anyone who has a bank account has an authorized overdraft limit. The credit card companies offer additional credit, allowing cardholders to effectively maintain two overdrafts. Advertisement Supposing a bank client has overdrawn his account to his allowable maximum of NIS 10,000. The bank will no longer honor his checks or charges to his account. This client can request an additional NIS 5,000, for example, from his credit card company. The credit card company would then deposit NIS 5,000 in the client's account, which would be repaid monthly from that account. Thus the client continues to use his regular account while effectively increasing his overdraft limit. All the credit card companies are owned by the banks, so the question remains if a Hapoalim client has an overdraft at his bank, for example, can he obtain additional credit from Isracard, which is owned by Hapoalim. The answer is not obvious. Some claim that the bank and the credit card company are two completely separate systems, while others recommend obtaining the additional credit from a different company. In any event, it is worth comparing the costs at the various companies. The non-bank credit market is a growing sector. Visa CAL, owned by Discount and First International, issues credit cards to account holders at Discount, First International, Mizrahi Tefahot and Bank Igud. One third of the company's credit cards, however, are non-bank cards, intended for clients of Hapoalim and Leumi who want credit in addition to what they receive from their bank. Since this credit is from a separate company, the money Hapoalim and Leumi clients receive is a non-bank loan. One third of CAL's credit cards are non-bank cards, as are 22 percent of those issued by Leumi Card and 13 percent of those issued by Isracard. Non-bank loans provide clients with a clear short-term benefit, allowing them to continue managing their bank accounts smoothly, with no fear of bounced checks due to an excessive overdraft. The additional LOC can also serve as a bridging loan, for example, when a client is expecting a large sum of money. In addition to the banks and credit card companies, there are a few other bodies that offer loans. These are financial institutions that manage pension, provident and continuing education funds, and grant loans to their fund members. This type of loan has much clearer criteria: The borrower must be a fund member for at least three years, the loan is for a maximum of five years, and the sum is limited to 50 percent of the accumulated funds that have been deposited. The money in the fund does not serve as collateral. Rather, the loan is drawn directly from the fund, but without reducing the returns. In other words, someone who has accumulated NIS 100,000 in a continuing education fund that pays 5 percent annual interest can borrow up to NIS 50,000, and receive his annual return as if there were still NIS 100,000 in the fund. Furthermore, fund managers use this type of loan as an investment avenue in every way. Thus, instead of investing in interest-bearing bonds, for example, the fund grants loans whose interest is sunk back into the fund's yield. The most common loan repayment track is one with interest linked to the CPI. The interest changes daily and is set according to the alternatives: After all, the fund could invest its money in government bonds, which offer 4.5 percent interest, plus linkage. Thus the loan would carry higher interest, of 5-6 percent, for example, plus linkage to the CPI. Bookmark to del.icio.us   A real mensch Chabad leaders say the slain rabbi's only concern was helping Jews away from home. An immodest proposal Likud MK suggests using Palestinian prisoners as human shields against Qassams.

Read & React 9 dead in Mumbai Chabad house assault; Israel to help identify bodies Responses: 420 ANALYSIS / Is Al-Qaida behind the Mumbai terror attacks? Responses: 138 Roni Bart: Obama only makes demands of Israel, not the Palestinians Responses: 142 Anshel Pfeffer: U.S. Jews jealous of Israelis who don't have to grapple with Jewish identity Responses: 94 More Headlines 00:29 9 dead in Mumbai Chabad house attack; Israel to help identify bodies 00:58 At Chabad house, Israeli paramedics checked the dead as crowd hailed the soldiers 01:11 Tensions escalate between India and Pakistan in wake of Mumbai attacks 00:32 ANALYSIS / Are the Mumbai attacks Obama's first test? 00:37 Indian media react angrily to Israeli criticism of Chabad rescue operation 00:40 Israeli survivors: We used our cell phones to keep in touch with each other 19:57 What do Israeli sex tourists in Thailand really think? 17:40 Two Palestinians, two settlers injured in clashes in Hebron 21:40 Likud MK calls for using Palestinian prisoners as human shields against Qassam rockets 12:31 8 IDF troops hurt in W. Negev mortar strike, soldier loses leg 14:38 Ahmadinejad blames West for spreading economic crisis to world 03:14 First U.S. ambassador to Libya in three decades to arrive in December 22:02 Police suspect elderly couple in Haifa attempted to commit suicide Previous Editions Select Day 28 nov 27 nov 26 nov 25 nov 24 nov 23 nov 21 nov 20 nov 19 nov 18 nov 17 nov 16 nov

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