Immediate, deferred, revolving and prepaid: which card gives you a loan and which does not
The Bank of Israel lists four types of payment cards, and the difference between them determines whether you are paying with your own money or borrowing at interest. What each one does, and how much it adds up to in shekels.
There are four types of payment cards recognized in Israel, and the Bank of Israel explicitly distinguishes between them: immediate debit, deferred debit, revolving credit, and prepaid card. The first three look almost identical in the wallet, but differ completely on the day the money leaves the account. The question of whether a credit card is credit or a loan gets four different answers, one for each type, and this is the explanation that most people have never received.
Immediate debit: the money goes out now
A card with immediate debit, known by its foreign name 'debit', charges the bank account very close to the time the transaction is performed. There is no credit here and no deferral: a purchase of 400 shekels at ten in the morning will appear in the account on the same day or the day after. The card is issued through the bank and is limited to the balance and the framework available in the account, and therefore does not create a new debt to the credit card company.
The Bank of Israel has been pushing this card for years, and the pricing is also structured to encourage it. The interchange fee that the issuer receives in an immediate debit transaction is aimed at a quarter of a percent, compared to half a percent in a deferred debit transaction, so the business pays less for such a transaction. Anyone who wants to control expenses and see them immediately in the account gets the most accurate tool here, and this is also the card that parents issue to children and teenagers.
The limitations of the debit card are revealed precisely at the margins. Some transactions that require freezing a sum in advance, such as renting a car or a deposit at a hotel, work less well with a card that charges immediately, and installment plans are not available to the same extent. Anyone traveling abroad should check in advance how their card behaves there.
This card is also open to those for whom other cards are closed. A minor can receive an immediate debit card with parental consent, and someone for whom the bank is not willing to provide a credit line will usually receive a debit card, because there is no credit risk to the bank. Even someone who has come out of a period of difficulties and wants to rebuild orderly conduct finds here a full means of payment without the temptation that accompanies credit.
It is still a card that charges an account, not a closed wallet. If there is a bank credit line in the account, the debit will continue to work even when the balance is negative and will increase the overdraft. The difference compared to a credit card is in the timing when the charge appears, not in the source from which the money comes.
Deferred debit: the card most Israelis hold
A deferred debit card is what most people mean when they say 'credit card'. The transactions you performed are accumulated throughout the month and charged all at once on a fixed billing date, usually on the 2nd or 10th of the month. From the moment of purchase until the billing date, you are holding someone else's money without paying interest on it.
This gap is worth real money, even if no one presents it that way. A purchase made the day after the billing date will be collected from you about a month and forty days later, and this is a short-term loan at zero interest. Anyone who pays the full bill every month enjoys this credit for free and pays only card fees, around 16 to 18 shekels per month for a regular card and about 28 to 39 shekels for club and premium cards.
The problem starts when the account does not cover the charge on time. The bank returns the charge or puts the account into an overdraft, fees are added, and the debt moves to the interest rate of the current account framework, which is higher than the prime interest rate and lower than the revolving credit interest rate. A returned charge that was not honored is also reported to the Bank of Israel's credit data database under certain conditions, and this affects the terms of the loans you will receive in the future.
The billing date is not a decree from heaven and it is possible to ask to change it. Credit card companies usually offer two or three dates, and matching the billing date to the salary receipt date is the cheapest action you can take with the card. Someone who receives a salary on the 1st of the month and is charged on the 2nd is in a comfortable position, and someone who receives a salary on the 10th and is charged on the 2nd lives every month for eight days on fumes.
Installments without interest are still a deferred debit and are not a loan. When a store offers three or six installments without interest, the cost is rolled over to the business and you pay exactly the sticker price. The danger here is not in interest but in accumulation: three such purchases create a fixed monthly obligation that continues to run even in a month when income is low, and this is exactly the situation that pushes people to the next product.
Revolving credit: here it is already a loan
A revolving credit card turns the monthly charge into a payment whose amount you choose. You notify how much you want to be charged this month, and the balance rolls over to the next month and bears interest. Anyone who does not notify anything is charged a minimal amount, and the rest continues to roll over by itself.
The interest here is the highest among the credit sources available to an average private individual. The average interest rate on revolving credit in Israel stands at about 15.6 percent per year, and the rates in the market move around 14 to 16 percent. The prime interest rate stands at 5 percent after the Bank of Israel lowered the interest rate in the economy to 3.5 percent, a bank loan linked to prime is sold with an added margin above it, and the overdraft framework is more expensive than both and still cheaper than the card. A debt of 10,000 shekels that remains as is for a whole year at an interest rate of 15.6 percent generates about 1,560 shekels in interest, without you having paid a single shekel of the principal.
This mechanism received regulatory attention not by chance. The Banking Supervision at the Bank of Israel published a dedicated audit review on the marketing and management of revolving credit cards, partly because the product is sometimes marketed as a cash flow relief and not as a loan.
The minimal payment is the heart of the mechanism and not a marginal detail. It is set to cover mainly the interest and a little of the principal, and therefore a debt repaid by the minimal payment only can last for years. A debt of 10,000 shekels repaid at 400 shekels per month at an interest rate of 15.6 percent will end in about 30 months, and along the way about 2,100 shekels of interest will be paid on that same purchase that has already been forgotten.
Exiting the mechanism requires your proactive action. It is possible to notify the company of a full charge instead of the minimal payment, it is possible to ask to convert the balance into a loan at a lower interest rate, and it is possible to repay the balance from savings that bear a return lower than the interest you are paying. All three ways require one conversation, and every month that passes without it costs money.
Prepaid card: money deposited in advance
A prepaid card works the opposite of all the rest: you load an amount onto it, and spend up to its limit. There is no credit line, no interest, and no surprise at the end of the month, because the money is already on the card.
This product is suitable for three clear situations. A parent who wants to give a child a limited means of payment, a person who wants to limit a budget for a trip or a project, and someone who does not hold an active bank account or does not receive a regular card. The price is in loading fees and usage limitations, and sometimes in a limited validity that is worth checking before loading.
A prepaid card is not reported to the credit data database as credit, simply because there is no credit in it. This is an advantage for those who want to avoid another recorded obligation, and a disadvantage for those who are trying to build a positive history of conduct towards a mortgage. The card also does not necessarily enjoy the same protections that exist in other payment cards, and it is worth checking in advance what happens if it is lost and who absorbs the amount that was loaded onto it.
So credit or a loan? The answer by type
An immediate debit card is not credit at all, and it is merely a conduit for money that is already yours. A deferred debit card is a short-term credit at zero interest, as long as the account is honored on time. Installments where you pay interest are a loan for all intents and purposes, even if it looks like a button at the checkout. Revolving credit is an expensive loan that renews itself every month, and without your active decision it does not end.
The distinction also gains meaning in the question of who owes whom and for how long. In deferred debit, your debt exists until the billing date and then closes, and every month starts from zero. In revolving credit, the debt remains open and accumulates, and it will appear among your obligations when another body comes to examine whether to lend you money. The exact same card, the same plastic, and two completely different financial products.
The credit line behaves differently in each of the four types. In debit there is no separate framework and everything relies on the account, in deferred debit the framework is intended to cover the monthly accumulation until the billing day, and in revolving credit the framework is actually a loan ceiling that can be used again and again. In a prepaid card there is no framework at all, and therefore there is no possibility to exceed it.
The way to identify which type of card you have does not require a conversation with a representative. In the company's personal area, the card type appears explicitly, and on the account page, a line appears indicating whether there is a balance for rolling over and at what interest rate. A card that shows a fixed monthly charge amount instead of an amount that changes according to purchases is almost always a revolving card, and this is the clearest sign.
This distinction is not semantic, and it appears in your credit report. Lending bodies report to the Bank of Israel's credit data database on frameworks, obligations, and the method of repayment. A delay is reported when 30 days have passed from the payment date. This report will accompany you when you request a mortgage.
The simplest check is in the account page you receive every month. Opposite each transaction, the type of charge appears, and at the bottom of the page, the amount of the upcoming charge and the balance remaining for rolling over appear, if it exists. If there is a balance there that does not decrease, your card functions as a loan and not as a means of payment, and it is worth pricing it against cheaper alternatives.
