Line of Credit vs Loan Calculator
The line costs less if your average balance stays under 46.0% of $50,000.00 ($23,007.04). Use it more than that and the term loan is cheaper.
How the line of credit vs loan calculation works
Compare a term loan with a line of credit for the same need. See the monthly payments and total interest and fees for each, and how much of the line you can use before the loan becomes cheaper.
Enter what you need and for how long
For example, $50,000 for 24 months.
Price the term loan
At 9% over 24 months the payment is $2,284.24, with $4,821.69 of interest. A 2% origination fee adds $1,000, for a total cost of $5,821.69.
Price the line by how much you use
You pay interest only on what you draw. If your balance averages half the limit, $25,000 at 12% for 2 years is $6,000 of interest, plus $300 of annual fees: $6,300.
Find the break-even use
Here the line is cheaper only if your average balance stays under 46.0% of the limit ($23,007). If you need the full amount for most of the term, take the loan.
Worked example. A landscaping company needs up to $50,000 for 24 months to cover payroll in the slow season. A term loan at 9% with a 2% origination fee costs $2,284.24 a month and $5,821.69 in total. A line of credit at 12% with a $150 annual fee, drawn to an average of $25,000, has an interest-only payment of $250 a month and costs $6,300 over the two years. The term loan costs $478.31 less. If the company only needs the money for a few busy months and its average balance stays under $23,007, the line costs less.
Line of Credit vs Loan FAQ
What is the difference between a line of credit and a loan?
A term loan pays out the full amount at the start, and you repay it in fixed monthly payments over a set term. A line of credit gives you a limit you can draw from, repay and draw again, and you pay interest only on what you have drawn. Loans are usually fixed-rate; lines are usually variable.
Is a line of credit better than a loan?
It costs less when you need the money only part of the time, because idle credit costs nothing or only a small fee. A loan is usually cheaper when you need the whole amount for most of the term, because term loan rates are often lower. In this example the line wins only if its average balance stays under 46.0% of the limit.
Line of credit vs term loan: which has lower monthly payments?
A line often has a lower payment because many lenders ask only for interest during the draw period: $25,000 at 12% is $250 a month. That payment does not reduce the balance. A term loan payment ($2,284.24 here) is higher because it repays the principal too.
When should a small business use a line of credit?
For uneven, short-term needs: covering payroll while customers pay invoices, buying seasonal stock, or a cash cushion for slow months. Draw, repay when cash comes in, and draw again.
When is a term loan the better choice?
For a one-time purchase you will pay off over years, such as equipment, a vehicle, a building or buying a business. The fixed payment is easy to budget, and the rate is usually fixed for the whole term.
What interest rates do lines of credit and loans charge?
Each lender sets its own. Lines of credit are usually variable, often quoted as the prime rate plus a margin; the bank prime rate was 7.00% in the Federal Reserve H.15 release of 19 Oct 2026. Use the rates in your own offers; the figures in this calculator are examples.
Does an unused line of credit cost anything?
Usually no interest is charged on the unused part, but some lenders charge an annual, maintenance or unused-line fee. Enter those in the fee fields so the comparison includes them.
Sources: Federal Reserve H.15: Selected interest rates (bank prime loan rate)