How to Calculate the Weighted Rate of Multiple Loans
A weighted interest rate expresses the overall interest rate you are paying on all loans, based on their individual rates and balances. It is a useful number in two major contexts. The first is when comparing the costs of getting one loan versus getting two loans at different interest rates. If you calculate the weighted rate on the two loans, you can compare this to the interest rate on the single loan to determine which costs less. The second context is consolidating federal student loans. The interest rate on your consolidation loan is based on the weighted rate of the existing loans.
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Instructions
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1
Look up the balance and interest rate for each of your loans. You can find this information on your most recent statement for existing loans or by asking the lender if you are using quotes for new loans.
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Multiply each loan's balance by its interest rate to calculate that loan's weight factor. For example, if one of your loans has a balance of $7,000 and an interest rate of 6.8 percent, multiply those to get 47,600 percent. If your other loan is $4,500 at 7.9 percent interest, multiply those to get 35,550 percent.
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Add together the weight factors. In this case, 47,600 percent plus 35,550 percent is 83,150 percent.
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Add together the loan balances. In this case, $7,000 plus $4,500 is $11,500.
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Divide the total weight factors by the total loan balances. In this case, 83,150 percent divided by $11,500 is 7.23 percent. This is your weighted rate.
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Tips & Warnings
The calculations work on any number of loans. If you have more than two, just calculate each loan's weight factor and make sure to include all of the weight factors and loan balances in the later steps.
If you are calculating the weighted rate for a federal student consolidation loan, round the answer up to the nearest 1/8 of a percent to find the rate for your consolidation loan. In this example, 7.23 percent would round up to 7.25 percent. If your result from the calculations had been 7.26 percent, you would need to round it up to 7.375 percent.
