Blended Rate Calculator (weighted average interest rate of several loans)

Understanding the blended interest rate calculator — concept and principle

This calculator finds the blended (balance-weighted average) interest rate across several debts, along with the total balance, next year's simple interest, interest per month, the plain average of the rates and the share of interest coming from the highest-rate debt. Use it to compare a debt consolidation offer, plan payoff order or understand what your overall borrowing really costs.

How it is calculated

• Blended rate = Σ(balance × rate) ÷ Σ balance.
• Interest for the next year (simple) = Σ(balance × rate).
• Interest per month = yearly interest ÷ 12.
• Simple average of the rates = Σ rates ÷ number of debts (for comparison).
• Share from the highest-rate debt = its interest ÷ total interest.

The principle

A weighted average gives each rate an influence proportional to the money it applies to. A plain average treats a small card and a large loan as equally important, which can mislead. The blended rate is the single rate that would charge the same interest today on your total balance, so it is the right benchmark for a consolidation loan: a new rate below the blend lowers your interest cost, as long as fees and a longer term do not cancel the saving.

Worked example

Default inputs: $15,000 at 6.5%, $8,000 at 4.2%, $4,500 at 22.9%.

1. Interest: 15,000 × 0.065 = $975; 8,000 × 0.042 = $336; 4,500 × 0.229 = $1,030.50.
2. Total interest ≈ $2,342 a year, about $195 a month; total balance $27,500.
3. Blended rate = 2,341.50 ÷ 27,500 ≈ 8.51%.
4. Simple average of the rates = (6.5 + 4.2 + 22.9) ÷ 3 = 11.2%.
5. The 22.9% debt produces about 44% of the interest while being only 16% of the balance.

How to read the result

Compare any consolidation or refinance rate with the blended rate, not with the average. If one small debt carries most of the interest, paying it off first (the avalanche method) lowers the blend fastest. The blend changes as balances fall at different speeds, so recalculate after a few months.

Common mistakes

• Using the plain average of the rates.
• Ignoring fees on a consolidation loan.
• Extending the term so far that total interest rises even though the rate falls.
• Mixing yearly rates with monthly rates.

Frequently asked questions

What is a blended interest rate?

The average of your rates weighted by how much you owe at each rate.

Should I consolidate if the new rate is below my blended rate?

It can save money if fees are low and the term is not much longer; compare total interest, not only the rate.

Which debt should I pay first?

Paying the highest-rate debt first usually saves the most interest.

Sources: Balance-weighted average interest rate Σ(B × r) ÷ ΣB (standard weighted-average arithmetic)