How is interest calculated on a revolving credit facility?
Updated on 27 May 2026.
Part of our Revolving credit facility guide.
A clear walk-through of how interest accrues on a revolving credit facility, with a worked daily-interest example and a side-by-side comparison against a term loan.
The core principle: you pay interest only on what you draw
With a term loan, interest is calculated on the full loan amount from the day the money lands in your account. If you borrow £100,000 and only spend £60,000 in the first 3 months, you are still paying interest on £100,000.
A revolving credit facility works differently. Interest accrues only on the outstanding drawn balance at any given time. If your facility limit is £100,000 but you have only drawn £30,000, you pay interest on £30,000. This distinction has a real impact on the total cost of finance over time, particularly for businesses whose capital needs fluctuate month to month. The structural reason this matters is covered in how revolving credit protects your cash flow.
How interest accrues: day-by-day calculation
Interest on a revolving credit facility is typically calculated on a daily basis, applied to the balance outstanding on each day. The daily rate is derived from the annual or monthly rate agreed on your facility. The wider cost framework is in how much does a revolving credit facility cost.
The basic formula
Daily interest charge = Outstanding balance × Daily interest rate
Daily interest rate = Annual rate ÷ 365
Example (illustrative, not Juice Flex’s published rate). Daily interest charge = £40,000 × 0.0493% = £19.73 per day. Over a 30-day period at this balance, total interest = £591.78.
How the interest calculation changes as you draw and repay
Because interest is tied to your outstanding balance, the cost of your facility responds in real time to your draw-down and repayment activity. Draw more and your daily interest cost rises. Repay and it falls immediately. The mechanics of how that draw-and-repay cycle works in practice are covered in draw down and repayment: how a revolving credit facility actually works.
Worked example: variable balance over 30 days (illustrative)
A 30-day breakdown of an example balance fluctuating from £0 to £50,000 at an illustrative 18% annual rate would produce approximately £579.12 in total interest. Compare this to a term loan of £50,000 at the same annual rate over 30 days, where interest accrues on the full balance regardless of usage: £739.73.
In this illustrative scenario, the revolving facility delivered the same underlying capital access at a much lower interest cost.
Facility fees vs interest: understanding the full cost
Some revolving credit facilities include a facility fee, a charge for having the credit line available, separate from the interest you pay on drawn amounts.
- Facility fee. A periodic charge (monthly or annual) for access to the credit limit, regardless of whether you draw.
- Draw-down interest. The interest charged on any outstanding balance.
Not all revolving credit facilities have both components, and the relative balance between them matters depending on how frequently you draw.
When evaluating any revolving credit product, ask:
- Is there a facility fee, and how is it structured?
- What is the interest rate on drawn balances?
- Are there any other charges (arrangement fees, early repayment charges)?
Juice Flex is designed to be transparent on cost: no early repayment penalties, and a clear rate structure so you can model the cost against your cash flow before you draw.
Revolving credit vs term loan: a side-by-side interest comparison
To make this concrete, here is a comparison of two businesses both needing access to up to £80,000 over a 6-month period. One uses a term loan, the other a revolving credit facility. The fuller structural comparison sits in revolving credit facility vs term loan.
In this illustrative scenario, the revolving facility costs approximately 56% less in interest, purely because interest accrues only on the drawn balance, not the full limit.
Both examples are illustrative. Actual rates depend on your business circumstances and the specific terms of your facility.
What affects your interest rate?
The rate offered on a revolving credit facility will vary depending on several factors, including your trading history, turnover, credit profile, and the size of the facility. Eligibility and rates are subject to status and lending criteria, and security requirements are set out in your facility offer.
How to think about interest when planning draw-downs
- Repay early when cash is available. Every pound you repay reduces your outstanding balance and immediately reduces your daily interest charge. With Juice Flex, there are no early repayment penalties, so repaying ahead of schedule reduces total interest cost.
- Draw only what you need. The facility is there when you need it. You don’t have to use it fully just because it is available.
- Match draw-downs to revenue cycles. Align draw-down timing with your expected repayment timeline to minimise cost.
- Use the facility as a bridge, not a baseline. Revolving credit is most cost-effective when used to bridge specific gaps.
Ready to check your eligibility?
Juice Flex is available to UK limited companies and LLPs with monthly turnover of £20,000 or more. Facilities run from £50,000 to £1,000,000, subject to status and lending criteria. Checking your eligibility uses a soft credit search, so there’s no impact on your credit score.