What is a weighted average?
The weighted average is determined by the current balance and the current interest rate of each loan that is being consolidated. The higher the balance, the greater “weight” is placed on the interest rate of that loan. The following shows a weighted average interest rate calculation for a loan application received by the lender: Step 1 Multiply the outstanding balance of each loan to be consolidated by that loan’s current interest rate. A variable rate loan should be included in the calculation at the rate at which it is currently accruing. (If you are currently receiving a .25% interest rate reduction due to your monthly payments being automatic, the rate we use is the rate prior to the .25% deduction). Example: Before you set up automatic payments from your checking or savings account, your interest rate was 5.5%. You signed up for automatic payments so your interest rate went down to 5.25%. The rate used to calculate your interest rate on your Federal Consolidation Loan is 5.5%.
Related Questions
- When calculating a companys weighted average cost of capital (used for discounting free cash flows when valuing the company), should we take the cost of net debt before or after tax?
- What is the formula for equivalent units of production using the weighted average method in managerial accounting
- Are high School honors courses weighted in favor of the grade point average and what is the minimum GPA?
