Money Clarity

Am I overpaying on my personal loan?

You agreed a rate once and have not looked at it since. Your lender has no reason to tell you it is now too high, and almost nobody checks. That single unexamined number is usually the largest recoverable cost in an Indian household budget - and recovering it takes far less effort than most people assume.

The problem: your rate was set on one day and never revisited

The rate on your loan reflects your profile and the market on the day you signed. Both have moved since. Lenders reprice for new customers, not existing ones, so the incentive to tell you runs the wrong way. Nothing in the system prompts a review - not your bank, not your statement, not your EMI, which looks identical whether your rate is fair or three points too high.

Your CIBIL score has probably improved if you have repaid on time for a year or more
Your income has likely risen, moving you into a different risk band
Market rates move with the RBI benchmark
Your EMI looks the same either way, so nothing ever prompts you to check

How big is it? Check one number against today’s market

Find the interest rate on your loan statement. Compare it against what banks are quoting today for someone with your profile. The gap between those two numbers is what this is worth. Most people who have held a loan for over a year and repaid cleanly find a gap of two to four percentage points.

Under 0.5 percentage points: usually not worth it, because the processing fee eats the gain
1 to 2 points: worth acting on if you have real tenure left - the switch itself costs you little
2 to 4 points: this is the common range, and it is worth acting on
Over 4 points: you are almost certainly on an NBFC rate and now qualify for a bank rate

What it costs you: the same gap, at different balances

A percentage point means nothing on its own. It means something when you multiply it by what you still owe and how long you still owe it for. This is the number that decides whether to act.

Rs 5 lakh outstanding, 3 years left, 3 point gap: roughly Rs 24,000 you do not get back
Rs 10 lakh outstanding, 4 years left, 3 point gap: roughly Rs 65,000
Rs 20 lakh outstanding, 5 years left, 3 point gap: over Rs 1.5 lakh
On a Rs 10 lakh loan that is about Rs 1,500 a month, every month, for nothing
Under 12 months remaining the case collapses - most of the interest is already paid

The fix: less work than you think, and cheaper than it was

You move the loan to a lender charging less. Most people picture branch visits and a stack of forms - that is not how it works now. In a balance transfer the new lender handles the closure of your existing loan: they disburse directly to the old lender, collect the closure documents, and complete it online. You are not the one standing in a loan centre. On top of that, the exit charge itself is now gone for most borrowers: from 1 January 2026 the RBI barred prepayment and foreclosure charges on floating-rate loans granted to individuals for purposes other than business, with no lock-in and regardless of where the repayment money comes from.

The new lender closes the old loan for you - the process is handled online, not at a branch
Check your loan agreement for floating versus fixed - this decides whether the RBI rule covers you
Floating, sanctioned or renewed on or after 1 January 2026: exiting costs you nothing in lender charges
Fixed-rate loans are not covered and may still carry a foreclosure charge
A charge not disclosed in your sanction letter, loan agreement or Key Facts Statement cannot be collected at all
The processing fee on the new loan, typically 1 to 2 percent, is the one real cost - subtract it before deciding

When the answer is no

Worth stating plainly, because a page that only argues one way is not worth trusting. Transferring is often the wrong move.

Under 12 months remaining - there is little interest left to save
A gap under half a percentage point - the processing fee eats it
A small outstanding balance where the absolute saving is a few thousand rupees
You are about to apply for a home loan - a fresh enquiry is unhelpful timing
You could simply close the loan instead, if you have the funds - always the cheaper option

Common questions

What interest rate gap makes a balance transfer worth it?

As a rule of thumb, a full percentage point or more, with at least a year of tenure remaining. Below half a point the processing fee and paperwork usually cancel the benefit. The larger the outstanding balance and the longer the remaining term, the smaller the gap that justifies moving.

Will my bank charge me to close my loan early?

For floating-rate personal loans taken by an individual for non-business purposes and sanctioned or renewed on or after 1 January 2026, no - the RBI barred prepayment and foreclosure charges on those. Fixed-rate loans are not covered and may still carry charges. Check your sanction letter, since undisclosed charges cannot be collected.

Does a balance transfer hurt my credit score?

Mildly and temporarily. The new lender runs a hard enquiry and a new account appears on your report, which can dip the score by a few points. Consistent repayment on the new loan recovers it, and reduced total interest usually outweighs the short-term effect.

Check your rate against today’s market rather than the one you remember agreeing to. If the gap is a point or more with real tenure left, act - the new lender does the closing, so the work is not yours. If the gap is small or the tenure is short, do nothing. That is a legitimate outcome and most content on this subject will not tell you so.

Written by Danish Mirza, founder of Unyfy. 14 years in Indian lending and collections at Standard Chartered, Barclays, Ola Money and Uni Cards.
Last reviewed 2026-09-08.