How to Calculate Weighted Average Interest Rates

Tuition costs for college and training are often paid with student loans or personal loans. Many people find that paying back these loans can be expensive and, to help re-payment, loaning institutions will consolidate the loans into a single interest rate. The cost of the consolidated loan is based on the weighted average interest rate on the multiple loans. To calculate such a weighted average interest rate, let's assume that there are two loans of $15,000 and $5,000 with 7 percent and 6 percent interest rates respectively.

Instructions

1. Multiply your loan by the interest rate. $15,000 * .07 = 1,050. $5,000 * .06 = 300. This will give you your "per loan weight factor."

2. Add the weight factors together: 1,050 + 300 = 1,350.

3. Add your loan amounts. $15,000 + $5,000 = $20,000.

4. Divide the weight factor total by the loan amount total and multiply the sum by 100. 1,350 / $20,000 = .0675 * 100 = 6.75. Your weighted average interest rate is 6.75 percent.

Resources

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