What Is a Blended Interest Rate?

When it comes to managing your finances, interest rates play a critical role in determining the cost of borrowing money and the potential return on your investments. You most likely know about some types of interest rates, but one may sound a little unfamiliar—a blended interest rate.

Blended interest rates demystified

Typically, a blended interest rate is used as a tool in conjunction with debt consolidation. It is a calculation that could help you save money.

A blended interest rate essentially takes all your debts (home loans, car loans, credit cards and/or personal loans), along with their various terms and amounts, and provides you with a single average interest rate, which can be compared to your new consolidated loan. For example:

You have a $10,000 loan with a fixed 6% annual percentage rate (APR). You have another $20,000 loan with a fixed 4% APR. Combining these loans gives you a fixed blended interest rate of 4.67% APR—which could ultimately save you money.*

Your blended rate may be affected by whether your current loans are fixed or variable. Contact your financial institution to see what your individual scenario would look like.

Benefits of debt consolidation

Consolidating multiple loans (essentially refinancing them into one loan), could have these benefits:

• Lower overall interest rate and/or monthly payment—Based on your credit score and what interest rate you can qualify for, you may be able to reduce the amount you are paying in interest.

• Fewer bills to pay—Instead of paying several different loans, you just pay one loan payment each month.

• Expedited payoff—When you refinance and consolidate with a lower interest rate, you may find you can afford to pay more toward your loan or refinance to a shorter term. Whether it’s just a little more each month or an extra payment each year, any additional money can go a long way to paying off your loan sooner.

• Improved credit—Build or repair your credit by making timely payments and faster payoffs.

Is a debt consolidation loan for you?

While blended interest rates can be useful in certain scenarios, they aren’t ideal for every situation. We recommend you consult with a financial professional to make sure this is a good money move for you.

Mountain America Credit Union has financial guides available to discuss blended interest rates and consolidating loans through our debt rescue program. It’s easy to set up a meeting!