Carry $20,000 on a line of credit at 8.45% and the interest alone is $140.83 a month. Pay $600 a month and the balance is gone in about 3.3 years, with $2,875 paid in interest. Put your own numbers in above to see your timeline.
How a line of credit differs from a loan
You borrow up to a limit and repay as you go, and interest is charged only on what you use. There is no fixed end date. Many lines ask for a minimum payment of interest only, and that flexibility is handy, since it lets you shrink the payment in a tight month. It also makes staying in debt easy.
What the interest costs
Rates are usually prime plus a margin, so they move whenever the Bank of Canada changes its policy rate. Monthly interest is the balance times the rate, divided by twelve. It is the least you pay to keep the balance, before a dollar of principal goes down.
The interest-only trap
Paying just the interest leaves the balance where it was. On $20,000 at 8.45% you send in $140.83 every month and still owe $20,000. The calculator warns you when a payment is too small to reduce the balance. Set it above the interest and you start to make progress.
Building a payoff plan
Pick a fixed payment you can keep up month after month. In the example, $600 clears the line in about 3.3 years. Raise it to $800 and both the time and the interest fall. The result box shows total interest, so each choice has a visible price.
Secured and unsecured lines
Unsecured lines come with a higher rate and a lower limit. A home equity line of credit is backed by your home and often has a lower rate. Either way, a variable rate means your cost can climb, so leave some room in the budget.
When a line makes sense
It suits short-term needs you can repay soon. It is a poor fit for long-term spending you can’t clear. Skip it for everyday costs. Treat the limit as a safety net rather than extra income, and keep the balance small enough that a bad month never turns into a long-term habit.
If the rate changes
The rate follows prime, so a rise of one point on $20,000 adds about $200 a year in interest. Try a higher rate in the calculator and check that your payment still holds up. A plan that only works at today’s rate is too tight. Aim for a payment that would survive a rate two points higher than what you pay now.
Closing the line
Paying the balance to zero does not close the line. To stop borrowing, ask the lender to lower the limit or close it. A large open limit can also change what a lender will offer for a mortgage, since the limit counts as possible debt.
Toronto and Ontario homeowners
Plenty of Toronto homeowners hold a home equity line alongside an unsecured one. The home-based line has a lower rate but puts your house at risk. Use the unsecured line for short needs, and save the secured one for planned projects such as a renovation.
Where to go next
Compare fixed payments with the personal loan calculator. For a home-based option, open the HELOC calculator. Card debt on top of all this? The credit card payoff calculator handles that.
Frequently asked questions
How is line of credit interest calculated?
On your balance, at a variable rate, usually prime plus a margin.
How much interest is $20,000 at 8.45%?
About $140.83 a month.
What is an interest-only payment?
A payment that covers only the interest and leaves the balance unchanged.
How long to pay off a line of credit?
It depends on the payment. $600 a month on $20,000 takes about 3.3 years.
What is the difference from a HELOC?
A HELOC is secured by your home and often has a lower rate.
Is the rate fixed?
Usually not. It changes with prime.
Sources and updates
Last reviewed: . Full disclaimer. How we build calculators. Editorial policy.
Estimate only. This calculator gives general information for planning. It is not tax, legal or financial advice, and it is not affiliated with the City of Toronto, MPAC or the Canada Revenue Agency. Results depend on the numbers you enter and may differ from official amounts. Check official sources or a qualified professional before you decide.