Debt Consolidation

The second test is behavioural. Consolidation clears your credit card balances. It does not close the cards. Most people who consolidate and then keep spending end up with the loan and the card balance, which is worse than where they started.

What is debt consolidation?

You take one new loan. You use it to pay off several existing debts. You then repay one EMI instead of five.

The gain is meant to come from a lower rate. Credit card revolving balances sit at the top of the retail cost stack in India. Card interest is quoted as a monthly rate on the statement, so the annual cost reads smaller than it is. Multiply it by twelve, then compare. A personal loan at 12% a year is usually far cheaper than a revolved card balance.

What rate do I need for consolidation to pay?

Work out the weighted average rate you pay now. Multiply each balance by its rate, add them, then divide by the total balance. That is your benchmark. The new loan must beat it after every fee.

Rates as of 15 August 2026, from our lender rate table. The low end of each range is a floor, not an offer. Personal loan pricing is risk-based and the spread is wide. The same lender may quote 11% to one applicant and 24% to another.

Two things move your quote more than anything else. A credit score above 750, and an employer on the lender’s approved list. Fix the score before you apply, not after. Our page on improving your credit score covers what actually moves it.

The fee nobody adds to the comparison

The processing fee is deducted upfront. So you receive less than you borrow, while paying interest on the full sanctioned amount. A 2% fee on ₹5,00,000 is ₹10,000. With 18% GST it is ₹11,800. You get ₹4,88,200 and you owe ₹5,00,000.

Add that to the rate before you compare. A 5% fee at Kotak’s upper limit is ₹25,000 plus GST on a ₹5,00,000 loan. That can wipe out a full percentage point of rate advantage on a short tenure.

Can my old lender charge me to close early?

It depends on whether the loan is floating rate, and this is where most articles get it wrong.

Here is the uncomfortable part. Most Indian personal loans are fixed rate, not floating. The floating-rate protection in para 5(i) does not reach them. So a lender can still levy a foreclosure charge on a fixed-rate personal loan. Ask for the charge in writing before you sign, and read our page on loan foreclosure and charges.

When consolidation is the wrong answer

Three cases. First, when you cannot get a rate below your weighted average. Refinancing at a worse rate to get one EMI is buying convenience with money.

Second, when you stretch the tenure to cut the EMI. A lower EMI over eight years can cost more in total interest than a higher EMI over three. Run it through our debt payoff calculator before you accept a long tenure.

Third, when the real problem is income, not structure. If your EMIs already exceed what you earn, a new loan delays the reckoning. Talk to the lender about restructuring instead. Never take a settlement without understanding what it does to your credit report, which our page on settlement versus closure explains.