Non-bank credit: not only from the bank
Loans do not come only from banks. Today, credit is also available from credit-card companies, pension and savings institutions, and peer-to-peer lending platforms. This page introduces the sources of non-bank credit, compares their costs, speed and collateral requirements, and explains how to choose an option without being tempted by quick and expensive money.
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Israel's credit market has undergone a revolution, and competition for Israeli borrowers is now greater than ever. In this chapter, we will get to know the alternatives to the bank: why a loan backed by a Keren Hishtalmut (קרן השתלמות)A medium-term savings product (six years) that benefits from a tax exemption on investment gains up to the applicable contribution limit. is considered the "queen of loans," how the social model in which people lend to other people works, and what to watch out for when a credit-card company offers you "quick money."
Loans from credit-card and finance companies
Companies such as CAL, Max and Isracard, as well as other finance companies, offer loans "at the click of a button." This is a quick solution that provides money without a complicated process.
- Main advantage: Speed and accessibility. This is the most readily available money, usually at the click of a button in an app, without explanations, guarantors or a branch visit. The money enters the account within minutes to hours.
- Main disadvantage: High cost, meaning expensive interestThe "price of money" – the amount paid for the use of someone else’s money, as income to the depositor or as a cost to the borrower.. Credit companies compensate for the risk caused by the lack of collateral and for the speed by charging interest that can be substantially higher than the bank or a Keren Hishtalmut.
- Who is it for? Someone who immediately needs a small to medium amount as an emergency cash-flow brake and plans to repay it as quickly as possible.
Loans from pension and savings institutions
Some of the most cost-effective sources of loans are pensionA monthly payment made to a person after retirement from work in order to help maintain their standard of living. and savings institutions, such as pension funds, provident funds and Keren Hishtalmut funds.
- Interest: In some cases, a loan is available at an interest rate close to the prime rateA base interest rate consisting of the Bank of Israel interest rate plus 1.5%. or even below it.
- Limits: Regulatory limits apply to the amount that can be borrowed.
- From a non-liquid Keren Hishtalmut, you can usually borrow up to about 50% of the accumulated amount.
- From a liquid Keren Hishtalmut, after six years from opening the fund, you can sometimes borrow up to about 65%–80% of the savings, depending on the investment track.
Example
If ₪100,000 has accumulated in a Keren Hishtalmut and it is not yet liquid, you can usually obtain a loan of up to about ₪50,000.
- Main advantage: The lowest interest rate. Because your own money serves as collateral, the lender takes almost no risk and can let you borrow on terms close to the rate at which banks lend to one another.
- Main disadvantage: The savings are pledged. Until the loan is repaid, the money is "locked." You cannot withdraw it, transfer it to another company or, in some cases, change the investment track. In addition, if you fail to repay, the debt will be offset against your pension savingsA general term for long-term savings products (pension fund, managers’ insurance, or provident fund) intended for retirement. and reduce your future benefit.
- Who is it for? Someone with accumulated savings, such as at least six years in a Keren Hishtalmut or a substantial amount in a provident fund, who needs a large, long-term loan on the best available terms.
Peer-to-peer loans
Another source is social-lending platforms, also known as peer-to-peer or P2P lending.
Under this model, private individuals lend money to other individuals through an online platform, without a traditional bank acting as intermediary.
How the process usually works
- Application: The borrower registers on the platform and submits a loan application.
- Credit-data check: The platform checks the borrower's credit data and assesses the level of risk.
- Listing the request: The request is presented to investors on the platform.
- Funding the loan: Several investors can jointly fund the loan.
- Transferring the money: Once funding is complete, the money is transferred to the borrower.
This model may allow borrowers to receive loans on more competitive terms and may also allow investors to earn a higher returnThe profit (or loss) from an investment over a certain period, usually expressed as a percentage of the original amount invested. than on bank deposits.
- Main advantage: Personalized terms. If you have an excellent credit rating, you may receive a highly competitive offer compared with the bank because the platform saves the heavy costs of bank intermediation.
- Main disadvantage: Fee structure and dependence on the rating. The process sometimes includes setup and management fees that can make the transaction more expensive. In addition, someone with a low credit rating may receive a very high interest rate or be rejected entirely because investors seek securityA general term for a tradable financial asset (such as a share, bond, or unit in a fund) that represents a right to an asset or to profits..
- Who is it for? Borrowers with a good credit history who seek a fair alternative to the bank and want to diversify their credit sources rather than depend on only one financial institution.
Comparison of non-bank credit options
| Credit source | Interest level | Speed | Important notes |
|---|---|---|---|
| Credit-card company | High | Immediate | A convenient but expensive short-term solution. |
| Keren Hishtalmut or provident fund | Very low | Medium, a few days | The most cost-effective loan, but it pledges the savings. |
| Peer-to-peer loans | Variable, according to rating | Fast | Depends on your credit rating in market systems. |
The bottom line
The credit market is not limited to banks. There are many other loan sources, from credit-card and finance companies through pension and savings institutions to peer-to-peer lending platforms.
Each source has its own advantages and disadvantages. Before deciding, compare the options, check the interest rates and fees, and make sure the terms suit your financial situation.
Frequently asked questions
Why does the credit-card company offer me a loan when I did not ask for one?
Credit companies profit from high interest rates. They identify that you have an unused credit "limit" and offer you a way to use it. Remember: just because they offer it does not mean you need it.
Does a loan from my pension fund reduce my future pension?
Not directly, as long as you repay it. The money continues to earn returns inside the fund, but you pay interest on the loan. If you do not repay it, the debt will be offset against the savings, and that will reduce the pension.
In summary
Power has shifted to consumers. The ability to obtain a low-interest loan backed by a Keren Hishtalmut or use a P2P platform to bypass the bank is a powerful tool. The key is always to compare: look not only at the monthly payment, but also at the total interest and what you give up or pledge in exchange for the money.