Blended Rate Calculator With Term

Blended Rate Formula:

\[ \text{Blended} = \frac{\sum (PV_i \times r_i \times Term_i)}{\sum (PV_i \times Term_i)} \]

Term-weighted Blended Rate:

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1. What is the Term-weighted Blended Rate?

The term-weighted blended rate calculates an average interest rate that accounts for different loan principals, their respective interest rates, and their terms. It's particularly useful for comparing multiple loans with different terms or calculating the effective cost of borrowing.

2. How Does the Calculator Work?

The calculator uses the blended rate formula:

\[ \text{Blended} = \frac{\sum (PV_i \times r_i \times Term_i)}{\sum (PV_i \times Term_i)} \]

Where:

\( PV_i \) — Principal amount for loan i (USD)
\( r_i \) — Interest rate for loan i (decimal)
\( Term_i \) — Term length for loan i (years)

Explanation: The formula weights each loan's contribution by both its principal amount and its term length, giving longer-term loans more influence on the final blended rate.

3. Importance of Blended Rate Calculation

Details: Calculating a term-weighted blended rate helps in comparing different loan options, refinancing decisions, and understanding the true cost of multiple loans. It's especially important when loans have different terms.

4. Using the Calculator

Tips: Enter all principal amounts, rates (as decimals), and terms in the same order. All three lists must have the same number of values. For example, if you have three loans, enter three principals, three rates, and three terms.

5. Frequently Asked Questions (FAQ)

Q1: How is this different from a simple weighted average?
A: This calculation includes the term length as an additional weighting factor, giving more importance to loans with longer durations.

Q2: Can I use this for monthly payments?
A: This calculates the blended interest rate, not payment amounts. For payment calculations, you'd need to use the blended rate in a separate amortization calculation.

Q3: What if my loans have different compounding periods?
A: For accurate comparison, convert all rates to the same compounding frequency (usually annual) before using this calculator.

Q4: Does this account for fees or other loan costs?
A: No, this only calculates the blended interest rate. For APR calculations that include fees, a different approach is needed.

Q5: Can I use this for investments instead of loans?
A: Yes, you can use the same formula to calculate the blended return rate on multiple investments with different terms.