Calculate Weighted Average Interest Rate

Weighted Average Interest Rate Formula:

\[ WAIR = \frac{\sum(Loan\ Amount_i \times Rate_i)}{Total\ Loan\ Amount} \]

Weighted Average Interest Rate:

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1. What Is Weighted Average Interest Rate?

The Weighted Average Interest Rate (WAIR) calculates the average interest rate across multiple loans, weighted by their respective loan amounts. This provides a more accurate representation of your overall borrowing costs than a simple average.

2. How Does The Calculator Work?

The calculator uses the WAIR formula:

\[ WAIR = \frac{\sum(Loan\ Amount_i \times Rate_i)}{Total\ Loan\ Amount} \]

Where:

\( Loan\ Amount_i \) — Individual loan amount in dollars
\( Rate_i \) — Interest rate for each loan (as percentage)
\( Total\ Loan\ Amount \) — Sum of all loan amounts

Explanation: The calculation gives more weight to loans with larger amounts, providing a true representation of your average interest cost.

3. Importance Of WAIR Calculation

Details: Knowing your weighted average interest rate helps in financial planning, debt consolidation decisions, and comparing different borrowing options. It's particularly useful for businesses with multiple loans or individuals with various debts.

4. Using The Calculator

Tips: Enter loan amounts separated by commas (e.g., 10000, 15000, 20000) and corresponding interest rates in the same order (e.g., 5.5, 4.2, 3.8). Ensure both lists have the same number of values.

5. Frequently Asked Questions (FAQ)

Q1: Why use weighted average instead of simple average?
A: Weighted average accounts for the different sizes of loans, giving a more accurate picture of your true interest cost.

Q2: Can I use this for credit card debt?
A: Yes, this calculation works for any type of debt where you have multiple balances with different interest rates.

Q3: How often should I calculate my WAIR?
A: It's recommended to calculate it whenever you take on new debt, pay down existing debt, or when interest rates change significantly.

Q4: Does this calculation include fees?
A: No, this calculation only considers interest rates. For a complete cost analysis, you should also factor in any associated fees.

Q5: Can I use this for investment returns?
A: Yes, the same principle applies to calculate weighted average return on multiple investments with different amounts and returns.