- Installment loan
- A loan paid back in equal scheduled payments over a fixed term, such as a personal, auto or term business loan. Each payment covers interest plus part of the principal, so the balance reaches zero at the end. Its payment is higher than an interest-only credit-line payment on the same amount, because it repays principal.
- Revolving line of credit
- A credit limit you can draw on, repay and reuse, paying interest only on the amount drawn. There is no fixed payoff date during the draw period. This calculator treats the line’s payment as interest-only, which keeps the payment low but leaves the full balance owed.
- Interest-only payment
- A payment that covers only the month’s interest — balance times annual rate divided by 12 — and none of the principal. $30,000 at 9% is $225 a month. The balance does not go down, so the debt lasts until you pay extra or the line converts to a repayment period.
- Payment difference
- How much more the installment payment is than the interest-only line payment each month. It is not a saving: it is roughly the principal the installment loan repays each month. On $30,000 at 9% over 5 years, the installment payment is about $623 against $225 interest-only.
- Principal
- The amount borrowed or drawn and still owed, not counting interest. An installment payment reduces principal every month; an interest-only payment leaves it unchanged. Over time that difference decides whether the debt is actually being paid off, or simply carried from month to month at a steady interest cost.
- Interest rate
- The annual percentage charged on the outstanding balance, before fees. This calculator applies the same rate to both options for a like-for-like comparison. In practice, credit lines usually carry variable rates tied to an index, while installment loans are often fixed, so the two can diverge over time.
- Draw and repayment periods
- Many credit lines, including HELOCs, have a draw period when you can borrow and may pay interest only, followed by a repayment period when new draws stop and the balance is amortized. Payments can rise sharply at that switch. This calculator shows only the interest-only phase for the line.
- Installment total cost
- Everything paid on the installment loan over its term: the amount borrowed plus total interest. No comparable figure exists for the interest-only line, because its cost keeps growing for as long as the balance remains outstanding. Comparing the two over the same number of years requires assuming when the line will be repaid.
