What is a Blended Rate?
Learn what a blended rate is, how to calculate the weighted average rate across multiple loans, and when this metric helps evaluate your overall debt cost.
A blended rate (or weighted average rate) is the overall effective interest rate across multiple loans, weighted by each loan's balance. It gives you a single number representing your average cost of debt when you have loans at different rates.
How to Calculate Blended Rate
To calculate your blended rate:
- Step 1: Multiply each loan balance by its interest rate
- Step 2: Add up all those products
- Step 3: Divide by the total of all loan balances
Formula
Blended Rate = (Loan1 Balance × Rate1 + Loan2 Balance × Rate2 + ...) ÷ Total Balance
Example Calculation
Suppose you have three loans:
| Loan | Balance | Rate | Weighted Value |
|---|---|---|---|
| Term Loan | $100,000 | 8% | $8,000 |
| Equipment Loan | $50,000 | 10% | $5,000 |
| Line of Credit | $25,000 | 12% | $3,000 |
| Total | $175,000 | $16,000 |
Blended rate = $16,000 ÷ $175,000 = 9.14%
Even though individual rates range from 8% to 12%, your overall cost of debt is 9.14%.
When Blended Rate Is Useful
Calculating your blended rate helps in several situations:
- Evaluating consolidation: Compare your blended rate to a refinancing offer
- Understanding total cost: See your overall debt expense as a single metric
- Prioritizing payoff: Decide whether to pay off high-rate loans first
- Comparing to new financing: Determine if a new loan improves or worsens your average
Blended Rate for Refinancing Decisions
When considering debt consolidation, compare your current blended rate to the proposed new rate:
- If the new rate is lower than your blended rate, refinancing likely saves money
- If the new rate is higher, you might be better off keeping existing loans
- Also consider term length — a lower rate over a longer term may cost more in total interest
Limitations
Blended rate is a useful simplification but has limitations:
- Does not account for different loan terms or amortization schedules
- Does not factor in fees, prepayment penalties, or other costs
- Assumes balances remain constant (which they do not)
- Variable rate loans make the calculation a moving target
Use blended rate as a quick comparison tool, but analyze individual loan terms carefully when making refinancing or payoff decisions.
Ready to explore your options?
See what financing you qualify for in minutes — no impact to your credit score.
Related Articles
What is APR? (Annual Percentage Rate Explained)
A clear explanation of Annual Percentage Rate, how it differs from simple interest rates, and why it matters when comparing business loan offers.
Read more →What is a Debt Schedule?
Learn what a debt schedule is, what information to include, and why lenders require this document when you apply for business financing.
Read more →Refinancing: Replacing Existing Business Debt
Learn when refinancing makes sense, how the process works, and what to consider when replacing existing business loans.
Read more →Fixed vs. Variable Rate: Which Business Loan Structure Is Right for You?
Understand how fixed and variable rate business loans work, which loan types use which structure, and how to decide based on your term length, risk tolerance, and cash flow needs.
Read more →Important Disclosure
Not Financial Advice: The information provided in this article is for general informational purposes only and does not constitute financial, legal, or professional advice. You should consult with qualified professionals before making any financial decisions.
No Guarantee of Financing: Liminal Lending Co. is a business loan marketplace that connects borrowers with third-party lenders. We are not a lender and do not make credit decisions. Submitting an application does not guarantee approval or funding. Loan terms, rates, and availability vary by lender and are subject to borrower qualifications and lender criteria.
Third-Party Lenders: All loan products are offered by independent third-party lenders. Liminal Lending Co. is an Independent Sales Organization (ISO) and receives compensation from lenders for successful referrals. Terms and conditions of any loan are between you and the lender.
Rate Information: Rates, terms, and fees mentioned in this article are estimates based on publicly available information and may not reflect current market conditions or specific lender offers. Actual rates depend on creditworthiness, business financials, and lender policies.
Information May Change: Financial markets, lending regulations, and economic conditions are subject to rapid change. While we strive to keep our content accurate and up-to-date, information in this article may become outdated. Always verify current rates, terms, program availability, and regulatory requirements with lenders and official sources before making financial decisions.