Home
Back
Weighted Average Interest Rate Formula:
| From: | To: |
The weighted average interest rate calculates the average interest rate across multiple loans or investments, where each rate is weighted by its corresponding principal amount or investment size. This provides a more accurate representation of the overall interest burden or return.
The calculator uses the weighted average formula:
Where:
Explanation: Each interest rate is multiplied by its weight, these products are summed, and then divided by the total weight to get the weighted average.
Details: Weighted average interest rate is crucial for financial planning, loan consolidation analysis, investment portfolio management, and comparing different financing options with varying amounts and rates.
Tips: Enter interest rates as percentages separated by commas (e.g., 5.5, 3.2, 4.8). Enter corresponding weights in the same order (e.g., 10000, 5000, 7500). Ensure both lists have the same number of values.
Q1: What are typical weights used in this calculation?
A: Weights are typically the principal amounts for loans or investment amounts for portfolios. They represent the size or importance of each interest rate.
Q2: How is this different from simple average?
A: Simple average treats all rates equally, while weighted average accounts for the different sizes of loans/investments, giving more importance to larger amounts.
Q3: When should I use weighted average interest rate?
A: Use when you have multiple loans with different rates and amounts, when analyzing investment portfolios, or when considering loan consolidation options.
Q4: Can I use this for credit card debt?
A: Yes, this is particularly useful for calculating the average interest rate across multiple credit cards with different balances and APRs.
Q5: What if my weights are in different currencies?
A: Convert all weights to a common currency before calculation to ensure accurate results. The calculator assumes consistent units for all weights.