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difference between LOC and Offset account!

Discussion in 'Finance & Banking' started by Triu, 19th Apr, 2007.

  1. Triu

    Triu Well-Known Member

    1st Sep, 2006
    Can anyone tell me the difference between using a Line of Credit for Business and Offset Account against my PPOR which i want to turn into a IP later on!

    Don't understand the concept clearly!

    Please explain?
  2. Simon

    Simon Well-Known Member

    17th Sep, 2005
    An offset is an account you store money in - like a savings or cheque account.

    But this one doesn't pay interest. What it does do is offset the interest charged on your loan.

    ie a loan of $200K has an offset of $50K. You only pay interest on $150K.

    The offset funds are never in the loan account so you can deposit and withdraw money at will and your loan balance is unaffected.

    This is about the best form of loan in nearly all cases. It provides tax advantages and flexibility.

    A LOC is a type of loan that acts like a credit card. You are given a limit and you can move money in and out as you need to. You are charged interest. In the wrong hands (like a CC) a LOC can be disastrous funding plasma tellies, 4WDs, boats etc.

    If you have a business that has a lot of money pass through it then consider using that account as your offset - speak to your accountant.