Is a revolving facility cheaper than a term loan?

2 min read

Revolving = pay-per-useCheaper if variable

Term = steadyCheaper if constant

Match to usageHow you'll actually borrow

Watch the feesFacility vs arrangement

Two different cost shapes

A revolving credit facility and a term loan cost money in different shapes. On a revolving facility you pay interest only on what you have drawn, when you have drawn it — so a lightly, intermittently used line can be very cheap. A term loan charges interest on the whole balance from day one, which is efficient for a lump sum you need in full and steadily repay, but wasteful for money you only need occasionally.

Match the product to how you borrow

The cheaper option is the one that fits your usage. If your need is variable — covering recurring cash-flow gaps, seasonal peaks, occasional opportunities — a revolving facility usually wins, because you are not paying interest on idle funds. If your need is a single, defined, long-term purchase you will repay over years, a term loan is typically cheaper and simpler. See how daily interest rewards flexible use.

Mind the fee structures

The comparison is not only about interest. A revolving facility may carry a facility fee or non-utilisation fee for keeping the line open, which can make a rarely-used committed line poor value. A term loan has its arrangement fee up front. Fold both fee structures into total cost for your expected usage before deciding.

Model your usage pattern on the true cost calculator, and to compare a facility and a loan, explore a revolving facility or apply for a term loan.

Frequently asked questions

If I might not use it much, is a facility still worth it?

Only if the availability itself is valuable enough to justify any facility or non-utilisation fee. A rarely-used committed line that carries a standing fee can cost more than applying for funds when you actually need them. If your need is genuinely occasional, weigh the fee for keeping a line open against simply borrowing on demand — sometimes the flexibility is worth it, sometimes it is not.

Which is cheaper for a one-off purchase?

For a single, defined purchase you will repay steadily over time, a term loan is usually cheaper and simpler than a revolving facility — you draw the whole amount once and repay it down, with one set of fees. A revolving facility earns its keep on variable, recurring needs, not on a one-off lump sum. Match the product to the shape of the need.