How to Calculate Blended Interest Rates

Write down the entire amount of the loan you wish to take out. For example, use the number $20,000.

Research the amount and interest rate of loans that you qualify for. For example, Bank A will give you Loan 1 of up to $5,000 at an interest rate of 6 percent. Bank B will give you Loan 2 of up to $12,000 at interest rate of 7.5 percent; Bank C will give you Loan 3 up to $20,000 at an interest rate of 8.0 percent.

Find your different options to satisfy the loan amount you wish to take out. In our example, you have 3 options. Option 1 is Loan 1 for $5,000; Loan 2 for $12,000; and Loan 3 for $3,000. Option 2 is Loan 2 for $12,000 and Loan 3 for $8,000. Option 3: Loan 3 for $20,000.

To find the blended interest rate, take the each amount and multiply by the interest rate and then divide the result by the total amount. For example: Blended Interest Rate for Option 1: {(5000 .06) + (12,000 .075) + (3000 .08)} / 20,000 = 0.072 or 7.2 percent Blended Interest Rate for Option 2: {(12,000 .075) + (8000 * .08)} / 20,000 = 0.077 or 7.7 percent Option 3: 8.0 percent

Compare the interest rates after calculating the blended interest rates. In the example above, Option 1 has the lowest interest rate.