Blended Rate

Blended rate refers to the interest rate that shows the combination of the new as well as the previous rate charged on any type of loan. The concept is commonly found in the refinancing of loans, in which the current interest rate seems to be higher than the previous rate. The blended rate is mostly computed in Accounting in order to get a clear picture of the exact debt obligations for different types of loans that come with varying rates. It also helps you calculate the total Income earned from different streams of interest.

As mentioned above, the most common application of the blended rate is for refinancing purposes. The lenders use this loan to persuade the borrowers to refinance their current loans into low-rate interest loans. Besides that, the blended rate loan helps you figure out the pooled cost of funds. It is also used to show the weighted average interest on different types of loans. Almost every individual borrower uses the blended rate in order to refinance mortgages as well as personal loans. No matter the type of loan you are applying for, you could find different types of online calculators to find out the blended interest rate as soon as you refinance your loan.

How does the blended rate work on the corporate and personal loans?

The best examples of blended rates are corporate debts and personal loans. Whether you are applying for a commercial loan or the personal loan, a blended rate can be applied to just about any type of loan. The calculation is quite a simple process. You could use either a calculator available online for identifying the rate or calculate it by computing the weighted average of the interest rates.

The blended rate is often seen as the best tool to retain clients. It is often used as a strategy to increase the total loan amount lent to trustworthy customers. Suppose a client has a loan of INR 75,000 that comes with a Flat interest rate of 7% and plans on refinancing their loan when the recent interest rate is 9 percent. The Bank or the financial institution that’s lending the money could offer the loan at a rate of 8 percent. The individual might then decide to refinance the loan for INR 100,000 with a rate of 8 percent.

The blended rate could also be defined as the average rate between the previous and current interest rates on loans. It is mostly used by the individual who applies for refinancing the old loan that comes with a high interest rate for a low-rate loan. There are times when the individuals apply for two new loans without repaying the current one. That’s when the blended rates come into the picture. It gives the borrower an opportunity to refinance their current loans rather than giving them an opportunity to fulfill their current loan obligations.