A revolving line of credit charges interest only on what’s actually drawn, unlike a term loan with a fixed original principal.
How it works
The drawn balance times the monthly rate (annual rate divided by 12) gives the monthly interest. Multiplying by the number of months the balance is held gives the total interest cost over that period.
What this does not include
This assumes a constant drawn balance for simplicity — a real revolving line typically fluctuates as funds are drawn and repaid, meaning actual interest would need to be calculated against the changing balance each month rather than a single flat figure.
How to use this calculator
- Enter the drawn balance, annual interest rate, and months outstanding.
Frequently asked questions
How is a line of credit different from a term loan?
A term loan disburses a fixed amount upfront with a set repayment schedule; a line of credit can be drawn, repaid, and redrawn repeatedly up to a credit limit, with interest charged only on the outstanding balance.
Does paying down the balance early reduce interest?
Yes — since interest accrues on the outstanding balance, any early repayment reduces the balance interest is calculated against going forward, unlike some fixed-term loans with prepayment penalties.
Is a business line of credit the same as a HELOC?
No — a HELOC is specifically secured by home equity; a business line of credit may be secured by business assets or unsecured entirely, with different qualification and rate structures.
