Enter the principals and their associated interest rates into the calculator to determine the overall weighted average rate.

Weighted Average Interest Rate Calculator

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Weighted Average Interest Rate Formula

The following equation is used to calculate the Weighted Average Interest Rate.

WAIR = ( Σ( Pᵢ × Rᵢ ) ) / ( Σ Pᵢ )
  • Where WAIR is the weighted average interest rate (%).
  • Σ(Pᵢ × Rᵢ) is the sum of the product of each principal and its associated interest rate.
  • ΣPᵢ is the sum of all principals.

To calculate the weighted average interest rate, multiply each principal by its interest rate, sum these products, then divide by the total principal.

What is a Weighted Average Interest Rate?

Definition:

A weighted average interest rate reflects the proportional impact of multiple interest-bearing components—such as distinct loans or investments—by considering each principal’s share in the total.

How to Calculate Weighted Average Interest Rate?

Example Problem:

The following example outlines the steps and information needed to calculate the weighted average interest rate.

First, determine the principals and their respective interest rates. For instance, consider two loans: a $5,000 loan at 8% interest and a $10,000 loan at 6.5% interest.

Next, calculate (Principal × Rate) for each loan: ($5,000 × 0.08) = $400 and ($10,000 × 0.065) = $650.

Then, sum each principal to find the total principal: $5,000 + $10,000 = $15,000.

Next, sum the products of principals and rates: $400 + $650 = $1,050.

Finally, use the formula above to find the weighted average interest rate:

WAIR = $1,050 / $15,000 = 0.07 = 7%

FAQ

What is the advantage of calculating a weighted average interest rate?

By calculating a weighted average interest rate, you gain a clearer overall picture of the effective interest rate across multiple loans or investments, accounting for how much principal is tied to each rate.

Can this calculator help me decide which debt to pay off first?

Yes, understanding your weighted average interest rate can guide you in deciding which loans have higher rates and priorities. However, other factors such as payment terms and loan flexibility should also be considered.

Does the weighted average interest rate change over time?

It can change if you pay off portions of your loans, take on new loans, or if the principal amounts and the interest rates themselves are adjusted over time.