How Does Interest Work on a Line of Credit?

A line of credit (LOC) gives you a pre-set borrowing limit that you can dip into when you need it—kind of like a reusable loan.

You only pay interest on the amount you actually borrow, not on the full limit.

The basics

Most lenders calculate interest on a line of credit like this:

• They take your annual interest rate and divide by 365 to get a daily rate

• Each day, they multiply that daily rate by your outstanding balance

• At the end of the billing period, they add up all those daily interest charges

In formula form:

Interest ≈ (Balance × Annual interest rate × Number of days) ÷ 365

A few key points:

• Interest starts the day you withdraw money

• It keeps running until you pay that amount back

• If you pay down the balance, your interest cost drops, because it’s calculated on whatever is still owing

Compared to a personal loan, you’re not locked into borrowing a fixed lump sum—you can borrow, repay, and borrow again up to your limit.

KOHO Line of Credit

KOHO offers a line of credit through our partner Fora, available via the app.

With the KOHO Line of Credit, you can:

• Apply online for about $1,000–$15,000 in available credit

• Get interest rates as low as 19.9%

• Only pay interest on what you actually use, not on your full limit

• Avoid extra charges—no late, annual, or origination fees, just the interest on what you borrow

• Apply without a hard credit hit; checking if you qualify won’t impact your credit score

Once approved, you can usually access funds as soon as the same business day and manage everything online.

Quick Example

Say you’re approved for a $5,000 line of credit at 20% annual interest, but you only borrow $1,000 for 30 days:

• Daily rate ≈ 0.20 ÷ 365

• Interest ≈ (1,000 × 0.20 × 30) ÷ 365 ≈ $16–$17

You’d pay back the $1,000 principal plus about $16–$17 in interest for that month. If you paid it off sooner, you’d pay less; if you carried it longer, you’d pay more.

That’s the core idea: the longer you carry a balance, and the higher that balance is, the more interest you’ll pay.