Term Loan vs Revolving Loan: Key Differences

A term loan provides a set amount of money that is repaid over a defined period, while a revolving loan lets a borrower draw, repay, and draw again up to an available limit. This calculator estimates the fixed monthly payment and total interest for a simple term loan; enter its principal, APR, and term to see the results.

Formula

The calculator uses the standard level-payment formula for an installment loan:

Monthly payment = P × r ÷ [1 − (1 + r)⁻ⁿ]

• P is the amount borrowed, in dollars.
• r is the monthly interest rate, calculated as APR ÷ 1,200. APR is entered as a percentage per year.
• n is the number of monthly payments, calculated as years × 12.

Total interest is calculated as the monthly payment × number of payments − principal. This estimate uses the unrounded payment in the formula expression; displayed values are rounded to cents.

Worked Example

Using the calculator’s default inputs—$20,000 principal, 8% APR, and a 5-year term:

1. Convert the APR to a monthly rate: 8 ÷ 1,200 = 0.0066667.
2. Convert the term to payments: 5 × 12 = 60 months.
3. Apply the payment formula: $20,000 × 0.0066667 ÷ [1 − (1.0066667)⁻⁶⁰] = approximately $405.53 per month.
4. Calculate total interest using the unrounded payment: approximately $405.528 × 60 − $20,000 = $4,331.68.

The results, rounded to cents, are a monthly payment of $405.53 and total interest of $4,331.68. Display rounding means multiplying the displayed payment by 60 may differ slightly from the interest calculation.

Assumptions

• The interest rate is fixed for the full term.
• Payments are made monthly and on schedule.
• Interest compounds monthly at APR ÷ 12.
• Fees, taxes, insurance, and other charges are not included.

Term Loan vs Revolving Loan: How They Work

The key difference is how the borrower accesses the money. A term loan is generally disbursed as a lump sum, then repaid through scheduled installments. Once principal is repaid, it normally cannot be borrowed again under that loan agreement. A revolving facility provides access to credit up to a limit: borrowing reduces available credit, and repayments may restore it.

For example, a business borrowing $50,000 for equipment might use a term loan when it knows the purchase amount and expects to pay it down over several years. A business facing uneven monthly expenses could use a revolving line of credit, drawing $8,000 for a temporary cash shortfall, repaying it as invoices are collected, and drawing again later if needed. Actual availability, repayment rules, and permitted uses depend on the contract.

“Revolving loan” is often used broadly for a revolving credit facility or line of credit. A credit card is another familiar revolving credit product, though its terms and payment mechanics can differ. A revolving arrangement is not necessarily a loan with one fixed balance or one fixed payoff date.

Payments, Interest, and Access to Funds

Term loans commonly have a scheduled repayment plan. Payments may include principal and interest, but the structure can vary: some loans amortize evenly, while others use different schedules or a final payment that is larger than earlier payments. A fixed-rate, level-payment calculator is therefore an estimate for a particular structure, not a complete description of every term loan.

With revolving credit, interest is generally based on the outstanding balance and the agreement’s rate and calculation method. If a borrower draws at different times or repays in between, the balance changes throughout the billing or interest period. Some facilities may also have fees or conditions tied to access or unused credit. The calculator above does not model those features or variable rates.

Neither product is automatically cheaper. Comparing costs requires the actual APR or rate, fees, repayment schedule, and expected borrowing pattern. Request the relevant figures from the lender and check which charges are included in any quoted total.

How to Choose the Right Comparison

The useful question is not simply which product has a lower payment. Consider how predictable the need for money is and how you expect to repay it. A defined, one-time expense may fit the structure of a term loan; recurring or uncertain short-term cash needs may call for examining a revolving facility. These are structural distinctions, not recommendations for an individual borrower.

• Amount and timing: Is there one known expense, or will borrowing needs arise at different times?
• Repayment source: Is there a predictable stream of funds for scheduled installments, or will repayments vary?
• Reuse: Do you need the ability to borrow again after paying down the balance?
• Rate structure: Is the rate fixed or variable, and how can it change?
• Full contract cost: What are the interest calculation, fees, minimum payments, repayment dates, and other conditions?

Compare the same assumptions across products: the amount actually borrowed, period outstanding, repayment timing, and charges. A small required payment on revolving credit does not necessarily show how long repayment will take or how much interest will accrue if the balance remains outstanding.

Common Misconceptions and Calculator Limits

A revolving limit is not the same as a lump sum already borrowed. Interest is generally associated with the amount outstanding, subject to the facility’s terms, rather than simply the maximum available limit. Conversely, paying down revolving credit does not always mean the borrower can draw again indefinitely; access can be subject to agreement conditions.

Another misconception is that every term loan has the same monthly payment structure. Payment frequency, rate type, fees, and final-payment arrangements vary. This calculator assumes a fixed APR, monthly payments, and monthly compounding, and it excludes fees and irregular payments. It also does not calculate revolving-loan interest because doing so would require a draw-and-repayment timeline and the applicable contract terms.

Use the calculator as an illustration of standard amortization, not as a quote or a comparison of actual offers. Enter the lender’s stated principal, APR, and term, and verify whether the APR and disclosed payment include the costs you intend to compare.

Frequently Asked Questions

Is a term loan the same as an installment loan?
A term loan is commonly repaid through installments over an agreed period, so the terms are often used similarly. Contract details determine the actual payment schedule and whether the balance amortizes fully.

Can you borrow again after repaying a term loan?
Usually, repaying principal does not restore borrowing availability under that same loan. Borrowing again would typically require a separate agreement or a product that specifically provides reusable credit.

Does a revolving loan have a fixed monthly payment?
Not necessarily. Required payments can depend on the outstanding balance and contract terms, and the amount can change as the borrower draws or repays. Check the agreement rather than assuming a level payment.

Which costs more, a term loan or a revolving loan?
There is no universal answer. Total cost depends on the rate, fees, time outstanding, repayment pattern, and other terms. Compare actual disclosures using the same borrowing amount and time period.

Does this calculator compare revolving-loan costs?
No. It estimates payments and interest for a fixed-rate term loan with equal monthly payments. A revolving-credit estimate needs the balance, draw dates, repayment dates, rate terms, and applicable fees.

This result is an estimate; the lender’s disclosure gives the exact figures.

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in p | Loan amount | $ | 20000 | 1 | 100000000
in apr | Interest rate (APR) | % | 8 | 0.01 | 100
in yrs | Loan term | years | 5 | 0.0833 | 50
out pmt | Monthly payment | $ | p * (apr / 1200) / (1 - (1 + apr / 1200) ^ -(yrs * 12)) | 2
out int | Total interest | $ | pmt * yrs * 12 - p | 2