A blended rate allows the borrowers to be free when creating their own loan repayment plan. Depending on the state and the bank, access to this type of interest rate may vary. Here, we primarily mean the period of shifting from a fixed to a variable interest rate and vice versa. In the case of this type of interest rate, the client and the bank usually agree on a period with a fixed repayment rate (for example 3 years) and a variable interest rate after that.
This type of interest rate is often attractive to people who want to have a predictable fixed repayment in the initial period and want to repay the loan early after that. In some countries, most housing loans are approved at a variable interest rate, but there are obvious changes in the market. In the last few years, loans with a fixed or mixed interest rate have become increasingly attractive to citizens.
The blended rate is the combined cost of all loans with all their interest rates. It is always different for each person individually and depends exclusively on the price and interest rates of the individual. In this text, you will learn why it is important, where it is used, what a blended rate calculator is, and how to use it. So, let’s get started, shall we?
What Is a Blended Rate Calculator?
Have you ever wondered if there is a tool that could calculate the blended rate for you and thus help you manage your own finances? If the answer to this question is yes, then you are in the right place!
The blended rate calculator is integrated software that will quickly, easily and for free calculate your blended rate. With a minimum of time, you will get your result in just a few clicks. You no longer have to bother with mechanical calculations or typing formulas and excel tables. To use this calculator you just need to enter the desired numbers and it will do all the work for you.
Formula
Blended rate = Σ(balances * rates) / Σ(balances)
To use this formula, you will need to know how much you need to pay for each loan and how much interest rates should be. Pretty easy, right?
Here is an example for you to better understand how the blended rate really works in real life:
| Items | Cost | Interest rate |
| Laptop | $10,000 | 10% |
| Bed | $500 | 3% |
| Chair | $200 | 5% |
Let’s say that you decided to buy some new stuff for your bedroom. In the table, you can see all the items that you purchased, their prices, and also the interest rates you will need to pay.
When you put all values in the formula you will get:
Blended rate = ((10,000 * 10) + (500 * 3) + (200 * 5)) / (10,000 + 500 + 200)
Blended rate = (100,000 + 1,500 + 1,000) / 10,700
Blended rate = 102,500 / 10,700
Blended rate = 9.58%
It means that you will be paying the interest rate of 9.58% every month.
Benefits of Using the Blended Rate
Using a blended rate method has many benefits. Here are some of them:
- All services are on one account
- Payment is in one place only
- Lower costs of delivering invoices to customers
- Lower payment costs
- Higher collection with less burden on the city budget
- Possibility to collect fees which individual collection would be uneconomical because the costs would exceed the amount of the service itself
- Realization of self-contribution through the unified collection
- Realization of donor and humanitarian actions
- Joint payment of an advance on a lawsuit
- Savings in computer and other equipment
- Savings in consumables
Where Can You Use the Blended Rate?
1. Refinancing Loan
If you find that your monthly income is not enough to pay your monthly obligations based on one or more loans, one of the possible solutions is to refinance those obligations. A refinancing loan is a loan approved by a bank for the purpose of settling your liabilities created on the basis of one or more loans obtained from one or more banks.
By taking out a refinancing loan, you get the opportunity to settle one or all existing obligations to banks with one new loan, regardless of whether they are due for payment or not. In this way, you can plan significant long-term investments without a headache. The installment of your loan will always remain where it is – unchanged.
With a refinancing loan you can:
- Make early repayments of loans you have already used;
- Settle credit card obligations;
- Settle liabilities based on approved and used overdrafts on current accounts;
- Make early repayment of the remaining installments of the leasing fee;
- Settle obligations under activated given guarantees; for example, you will be able to repay someone’s obligation as a guarantor.
If you are considering taking out a refinancing loan, first check the cost-effectiveness of the refinancing itself. Namely, regardless of the fact that a new loan can fulfill your basic goal – to reduce the amount of the monthly installment – you should keep in mind that when extending the repayment period, the total interest costs increase.
2. Purchasing multiple items with a credit card
When it comes to a larger amount, it is harder to pay the full price immediately. Therefore, one of the good options is to use a credit card. With its help, you will more likely get approval to repay all the things you buy in installments. That is why many citizens have credit cards. This is an ideal solution to bridge the “awkward period” in the month when the next inflow of money to the account is expected.
You can use it when buying furniture and household appliances, clothes, and shoes. It will also come in handy when making household purchases and when you’re using cards on the Internet for payments and travel reservations. Remember that it is not necessary to buy all things in the same store. It’s also not required that the number of months to repay is the same. Take advantage of it!