How to minimise interest on a revolving credit

2 min read

Draw tightOnly what you need

Repay fastDaily accrual rewards it

Watch the feesNon-utilisation counts

Average overdraft used (£)

Annual interest rate (%)

Annual arrangement/renewal fee (£)

Annual cost ≈ average balance used × rate + fees. Compare against a term loan for the same need.

Step 1 — draw only what you need, when you need it

Because interest accrues on the daily drawn balance, drawing later and only for the shortfall keeps the cost down. Do not draw a buffer you will not use.

Step 2 — sweep spare cash against the balance

Move idle cash onto the facility whenever you can, even briefly. Every day the balance is lower is a day of interest saved. Redraw when you need it again.

Step 3 — mind the non-utilisation fee

A committed facility may charge a non-utilisation fee on the undrawn part. Size the limit to what you actually need so you are not paying for idle headroom.

Step 4 — check the compounding and day-count basis

Know how often interest compounds and the day-count basis — on a large balance, actual/360 costs a touch more than actual/365.

Step 5 — review the facility periodically

As your profile improves, renegotiate the rate and the fees, or compare against an overdraft. Model your usage with the calculator below.

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Frequently asked questions

Does repaying a revolving facility early save interest?

Yes. Interest accrues daily on the drawn balance, so every day you reduce it saves interest immediately. Sweep spare cash on and redraw when needed.

What is a non-utilisation fee?

A small charge on the undrawn part of a committed facility, paying the lender to keep the headroom available. Size your limit sensibly to avoid paying for unused capacity.

Should I use a revolving facility or an overdraft?

Depends on usage. Heavier, regular users often do better on a lower-rate revolving facility; light users on a simple overdraft. Compare the total cost for your pattern.