Personal Loan vs Line of Credit Calculator

What this calculator does

Personal loans and lines of credit (LOCs) both provide access to borrowed funds but have different structures. A personal loan is fixed-rate, fixed-term, and fixed-payment — the borrower receives a lump sum, pays a constant monthly amount, and clears the balance on a known date. A line of credit is typically variable-rate, allows draw-and-repay flexibility within a credit limit, and often permits interest-only minimum payments. This calculator strips out the structural differences and compares like-for-like: both options modelled as fully amortised at the entered rates and terms, so the only thing varying between them is the rate-and-term combination.

How the comparison is set up

Each side is computed using the standard amortisation formula at its own rate and term. The personal loan side uses the personal loan APR and personal loan term in years. The LOC side uses the LOC APR and the chosen payoff period. Total interest for each is the monthly payment times the number of months, minus the principal. The cheaper option is the one with the lower total interest. The output surfaces both monthly payments so the cash-flow trade-off is also visible — a shorter payoff period typically produces a higher monthly payment but lower total interest.

Worked example

Inputs: 10,000 principal, 8% personal loan APR over 3 years, 10% LOC APR with 2-year payoff. The personal loan amortises at about 313 per month for total interest of about 1,281. The LOC amortises at about 461 per month for total interest of about 1,075. The LOC option is cheaper in total interest by about 206, despite the higher rate, because the shorter 2-year payoff exposes the principal to fewer months of interest accrual. Stretch the LOC payoff to 4 years at the same 10% rate: monthly drops to about 254, but total interest rises to about 2,174, and the personal loan now saves about 893. The payoff period is at least as influential as the rate.

Why payoff period matters as much as rate

Total interest scales with both the rate and the months over which interest accrues. A 1-percentage-point rate difference on a 10,000 balance over a 3-5 year window typically produces a few hundred in total interest difference. A 1-year difference in the payoff period on the same balance often produces a similar or larger difference. The two effects can pull in opposite directions: a higher rate over a shorter period sometimes costs less in total interest than a lower rate over a longer period. The calculator surfaces both inputs as direct levers so the trade-off is visible at the inputs entered.

Variable-rate risk on lines of credit

Lines of credit in many markets are variable-rate, tied to a benchmark rate plus a margin. When benchmark rates move, the LOC rate moves with them. A LOC quoted at the entered rate today may carry a different rate in 12-18 months. The calculator treats the entered LOC rate as fixed for the comparison window, which is a simplification — real LOC interest cost depends on the rate path across the payoff period, not the rate at draw. For LOC products that are explicitly fixed-rate (some home-equity-secured lines, some lender-specific products), the variable-rate caveat does not apply.

Minimum payment flexibility on lines of credit

Personal loans require the full amortising payment each month. LOCs often allow interest-only minimum payments, meaning the principal does not fall unless the borrower voluntarily pays more. The calculator assumes active payoff — the borrower is paying down the LOC over the entered payoff period. Real LOC usage frequently extends payoff well beyond the planned window because of the minimum-payment flexibility, which raises the actual total interest above the calculator's figure. The figure is the planned cost; the achieved cost depends on whether the active payoff schedule is followed.

What this calculation does not capture

Variable-rate path on lines of credit. Origination or arrangement fees on personal loans (commonly 1-8% of principal). Annual fees on lines of credit. Early-payoff penalties on either side where they apply. Minimum-payment-only LOC scenarios. Tax treatment of interest, which varies by jurisdiction and loan purpose. Credit-utilisation effects on credit scores. The calculator surfaces the rate-and-term effect on total interest; the rest of the cost picture should be checked against the specific loan and line agreements.