Introduction to Weighted Average Rate

When loans are being disbursed in multiple tranches, each having its own interest rate a Weighted Average Rate (WAR) for the arrangement has to be calculated and applied to the contract after each disbursement .

A weighted average interest rate is an average that is adjusted to reflect the contribution of each loan to the total debt. The weighted average multiplies each loan’s disbursement interest rate by the loan balance and divides the sum by the total loan balance. Each loan’s disbursement interest rate contributes to the weighted average in proportion to the loan’s percentage of the total debt.

The Weighted Average Rate Type of Interest condition enables the calculation of the weighted average rate, which determines the actual effective rate of the arrangement.