Blended rate

Definition

A blended rate averages the rates on the components of a facility, weighted by their balances — much like a weighted average rate but within one deal. When you top up an existing loan at a new rate, the blended rate is what you effectively pay across the whole balance.

In plain terms

Add new borrowing to old and the effective rate is a mix of both — the blended rate tells you the real cost of the combined debt.

Why it matters for your company

When topping up borrowing, work out the blended rate before agreeing. See weighted average interest rate.

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In practice

Picture a UK limited company that took out a business loan some time ago and later needs a top-up to cover an unexpected order or seasonal gap. Rather than replacing the original agreement, the lender adds the new amount on top, often at a different rate than the original tranche. From that point, the company is not paying one clean rate — it is paying a blend of the old and new pricing, weighted by how much of each is still outstanding.

For the finance director or owner-manager, the practical question is not "what's the rate on the new bit" but "what does the whole facility now cost, taken together". That is exactly what the blended rate answers, and it is the figure worth asking a lender to confirm in writing whenever borrowing is added to an existing facility rather than negotiated as a fresh, standalone deal.

Common pitfalls

The most frequent mistake is focusing only on the rate quoted for the new top-up and assuming that is now "the" rate on the account, when in fact the older tranche keeps accruing at its own rate until it is repaid or refinanced. This can make a top-up look cheaper on paper than it actually is once the whole balance is considered.

A related pitfall is comparing offers from different lenders using only the headline rate on the incremental amount, rather than working out what each option does to the total cost of credit across the full, blended balance. Asking a lender to set out the blended position clearly — alongside, where relevant, the weighted average interest rate — avoids surprises when reviewing statements later in the term.