See your interest-only payment, how long it takes to pay off your line of credit with a fixed payment, or what you need to pay each month to be debt-free by a target date. Works for unsecured personal lines of credit and home equity lines of credit (HELOC).
Estimates assume a fixed rate, no new withdrawals and interest compounded monthly. Real interest accrues daily and changes when prime changes.
| Year | Paid | Principal | Interest | Balance |
|---|
How a line of credit works
A line of credit (LOC) is a revolving credit limit. You borrow what you need, repay it, and borrow again. You only pay interest on the amount you actually use, not on the full limit. Most lines of credit in Canada have a variable rate set as prime + a margin, so your rate moves every time your lender changes its prime rate.
How to calculate line of credit interest
Monthly interest ≈ Balance × annual rate ÷ 12
Lenders actually calculate interest daily (balance × rate ÷ 365 × days), so the exact amount varies slightly from month to month.
Example: a $20,000 balance at 8.45% (prime 4.45% + 4%) costs about $140.83 a month in interest, or about $1,690 a year, if you only pay the interest. After that year, you still owe the full $20,000.
The interest-only trap
Many lines of credit, especially HELOCs, only require you to pay the interest each month. That keeps the payment low, but the balance never goes down. Paying even a little principal every month changes everything:
| Monthly payment on $20,000 at 8.45% | Time to pay off | Total interest |
|---|---|---|
| $140.83 (interest only) | Never | $1,690 every year |
| $300 | 91 months (7 yr 7 mo) | $7,098.63 |
| $500 | 48 months (4 yr) | $3,573.12 |
| $750 | 30 months (2 yr 6 mo) | $2,230.36 |
| $1,000 | 22 months (1 yr 10 mo) | $1,632.93 |
What you need to pay to be debt-free by a target date
Use the “Pay off by a date” mode above. For the same $20,000 at 8.45%:
| Payoff goal | Monthly payment | Total interest |
|---|---|---|
| 1 year | $1,743.93 | $927.16 |
| 2 years | $908.66 | $1,807.84 |
| 3 years | $630.89 | $2,712.04 |
| 5 years | $409.85 | $4,591.00 |
How a rate change affects you
Because the rate is variable, every move in the prime rate changes your cost. On a $10,000 balance with a $300 monthly payment:
| Rate | Interest-only payment | Payoff at $300/month | Total interest |
|---|---|---|---|
| 6% | $50.00 | 37 months | $966.80 |
| 8% | $66.67 | 38 months | $1,346.95 |
| 10% | $83.33 | 40 months | $1,764.16 |
| 12% | $100.00 | 41 months | $2,224.95 |
Line of credit vs credit card
Moving a credit card balance to a lower-rate line of credit can save a lot, as long as you stop adding to the card. Here is $10,000 repaid at $300 a month:
| Product | Rate | Time to pay off | Total interest |
|---|---|---|---|
| Credit card | 20.99% | 51 months | $5,135.24 |
| Line of credit | 8.45% | 39 months | $1,437.34 |
Same payment, about $3,700 less interest and a year sooner debt-free.
Personal line of credit vs HELOC
| Personal (unsecured) LOC | HELOC (secured by your home) | |
|---|---|---|
| Rate | Higher (prime + a larger margin) | Lower (often prime + a small margin) |
| Limit | Based on income and credit | Based on home equity (revolving part up to 65% of home value in Canada) |
| Minimum payment | Interest or a % of the balance, depending on the lender | Often interest only |
| Risk | Credit score damage if you miss payments | Your home is the collateral |
Tips to pay off a line of credit faster
- Pay more than the interest, every month, automatically.
- Treat it like a loan: pick a payoff date and use the calculator to set the payment.
- Stop new withdrawals while you pay it down.
- Plan for rate increases: test your budget at 1–2% above today’s rate.
- Put windfalls on the balance: tax refunds and bonuses cut interest immediately.
Frequently asked questions
How is line of credit interest calculated?
Interest is charged daily on the balance you owe: balance × annual rate ÷ 365 for each day. For a quick monthly estimate, use balance × annual rate ÷ 12.
What is the interest-only payment on a $20,000 line of credit?
At 8.45%, about $140.83 a month. At 6%, about $100. Paying only interest never reduces the balance.
How long will it take to pay off my line of credit?
It depends on your balance, rate and payment. For example, $20,000 at 8.45% takes about 48 months at $500 a month and about 22 months at $1,000 a month.
Is a line of credit cheaper than a credit card?
Usually yes. Lines of credit are typically priced at prime plus a margin, while many credit cards charge around 20% or more. Consolidating a card balance onto a lower-rate line of credit can save thousands if you stop using the card.
Does a line of credit hurt my credit score?
Opening one triggers a hard credit check. After that, paying on time helps your score, while using a high share of your limit can lower it.
What is the difference between a HELOC and a personal line of credit?
A HELOC is secured by your home, so it usually has a lower rate and a higher limit. A personal line of credit is unsecured, so the rate is higher but your home is not at risk.
What happens to my payment when the prime rate goes up?
Your interest rate rises by the same amount, so your interest cost increases right away. If your payment stays the same, more of it goes to interest and it takes longer to pay off.
Related calculators
- Personal loan calculator
- Debt consolidation calculator
- Credit card payoff calculator
- Mortgage calculator
Disclaimer: This calculator provides estimates for information only and is not financial advice. Rates and minimum payment rules vary by lender. For your rights as a borrower in Canada, see the Financial Consumer Agency of Canada.