Loan vs Line of Credit

Loan vs. Line of Credit

Compare taking a lump-sum installment loan against drawing the same amount from a line of credit with interest-only minimum payments.

Scenario

Amount needed ($)

Installment loan rate (%)

Line of credit rate (%)

Term for comparison (years)

Average % of line drawn

Results

Better option

—

Installment loan — monthly payment

—

Installment loan — total cost

—

Line of credit — interest-only pmt

—

Line of credit — total interest

—

The line of credit assumes you pay only interest and keep the balance at the average utilization over the period — not paying down principal keeps interest high.