Debt Consolidation

Debt consolidation loans: how to compare three offers

Put three consolidation offers for ₹6 lakh side by side. One is at 10.5 percent, one at 11.5, one at 12.5. Most people pick the first, and on these three particular offers the first is the one that costs ₹1,95,020 in interest and fees, against ₹1,29,678 for the one at 12.5 percent. The lowest rate lost by ₹65,342, and it lost because the rate was attached to a longer tenure and a bigger fee, and nobody looked at either.

There is no such thing as a best consolidation loan. There is the offer that beats your current position after the fee and over your real remaining tenure, and that is a different offer for different people. What is the same for everyone is the method: five numbers define an offer, one of them is the answer, and the rate is not it.

This page is that method. It assumes you already know why consolidation can work and what a percentage point costs; that is on the consolidation guide. Here the question is narrower: you have two or three sanction quotes in hand. Which one, and should it be any of them?

Last reviewed 2026-09-23

The five numbers that define an offer

The technique

Total amount payable is the number; the rest are inputs

A rate on its own predicts nothing about cost. The same 10.5 percent produces ₹1,02,053 of interest over 36 months and ₹1,73,780 over 60 on the same ₹6 lakh. Every quote you receive has to state the total amount you will repay; it is on the Key Fact Statement the lender must give you, usually in a table nobody reads.

Every consolidation quote reduces to five numbers. Write all five down for each offer before you compare anything, because the first three are the only ones lenders put on the front page, and the last two are where the cost actually sits.

Rate: the annual reducing-balance rate. It sets the EMI together with tenure, and it is the least useful number on its own
Tenure: the number of months. Longer means a smaller EMI and more total interest, always, and the second effect is bigger than people expect
Processing fee, with GST: a 2 percent fee is 2.36 percent of the loan once 18 percent GST is added. It comes off the disbursal, so you borrow ₹6 lakh and receive ₹5,85,840
Foreclosure and part-payment terms: what it costs to pay the loan off early, and from which month you are allowed to. This number is zero on some offers and 4 percent plus GST on others, and it decides what a bonus is worth to you
Total amount payable: EMI multiplied by tenure, plus the fee. This is the cost of the offer. Everything else is how the lender arrived at it

Three offers on ₹6 lakh, compared

Here are three illustrative quotes for a ₹6 lakh consolidation loan, the kind of spread you would actually get back from three lenders in the same week. All rates are reducing-balance, and fees include GST.

Offer	Rate, tenure, fee	EMI	Interest	Interest + fee
A	11.5%, 48 months, 2%	₹15,653	₹1,51,363	₹1,65,523
B	12.5%, 36 months, 1%	₹20,072	₹1,22,598	₹1,29,678
C	10.5%, 60 months, 3%	₹12,896	₹1,73,780	₹1,95,020

Illustrative rates. Fee is the stated percentage of ₹6 lakh plus 18% GST: ₹14,160, ₹7,080 and ₹21,240 respectively. Reducing-balance EMI.

Ranked by rate, the order is C, A, B. Ranked by what you actually pay, it is B, A, C. The two lists are exact opposites, and the gap between the top and bottom is ₹65,342
The fee changes the rate you really pay. Solve for the rate on the cash you actually receive and A is effectively 12.78 percent, B is 13.33, C is 12.08. C still has the lowest true rate, which is the point: even the corrected rate does not rank the offers by cost. Tenure does
The fair comparison is at one tenure. Re-quote all three at 36 months and C becomes the cheapest at ₹1,23,293 all-in, then A at ₹1,26,442, then B at ₹1,29,678. C's rate was never the problem. The 60 months attached to it was, and a lender will usually quote you the same rate at a shorter tenure if you ask

The tenure trap

The technique

Price the relief in rupees of interest per rupee of EMI

Stretching a loan is sold as the same money for a smaller EMI. It is not the same money. On ₹6 lakh at 12 percent, going from 36 to 60 months buys ₹6,582 a month of relief and costs ₹83,371 of extra interest. That is ₹12.67 of interest for every rupee the EMI comes down.

Offer C won on rate and lost on cost for one reason: 60 months. Here is the same effect isolated, with the rate and fee held fixed so nothing else moves. ₹6 lakh at an illustrative 12 percent, three tenures.

Tenure	EMI	Total interest	Extra interest vs 36 months
36 months	₹19,929	₹1,17,429	—
48 months	₹15,800	₹1,58,414	+₹40,985
60 months	₹13,347	₹2,00,800	+₹83,371

Reducing-balance EMI at 12%, no fee. Illustrative rate.

The EMI falls by a third from 36 to 60 months. The interest rises by 71 percent. The lender's page shows you the first number and not the second
A longer tenure is the right choice when the shorter EMI genuinely does not fit your income after existing obligations. It is the wrong choice when it is picked for comfort, because comfort here is priced at ₹83,371
The honest way to use tenure: find the shortest one whose EMI you can carry, and compare offers only at that tenure. A lender who will not quote at your tenure has told you something about the offer

Foreclosure: the clause you read for year two

The technique

A free-foreclosure clause is worth a known rupee amount, so price it

If you expect a bonus, a maturity or a sale in the second year, the offer that lets you close early for nothing is worth the foreclosure charge you would otherwise pay. On ₹4 lakh outstanding that is ₹16,000 at 4 percent, ₹18,880 with GST. That is larger than the ₹7,080 fee gap between offers A and B, so it can flip the ranking.

Take offer A. After 18 EMIs of ₹15,653, the outstanding principal is ₹4,06,448. Suppose a bonus arrives that month and you want to clear it.

Offer A closed at month 18, ₹4,06,448 outstanding

Interest still to be paid if you hold the loan to 48 months: ₹63,154
Foreclosure charge at 4% plus GST: ₹19,184
Net saved by closing early even after the charge: ₹43,970
Net saved if the same loan had free foreclosure: ₹63,154

Illustrative. Charge is on the outstanding principal at the time of closure. Some lenders bar foreclosure in the first 6 to 12 months entirely.

Foreclosing is still right even with the charge; ₹43,970 is real money. The point is narrower: between two offers that are otherwise close, the one with free foreclosure is worth ₹19,184 more to you, and that is only visible if you know a bonus is coming
RBI's 2026 direction removes foreclosure charges on floating-rate loans to individuals for non-business purposes. Most personal loans are fixed-rate, so the clause in your sanction letter still applies. Read it, do not assume it
Ask for the part-payment terms too. A loan that allows part-payment of up to 25 percent of principal a year without charge lets you use the bonus without closing the loan, which is often the better move if the rate is good

When consolidation is the wrong answer

The technique

Break-even remaining tenure

A one-point rate improvement produces a small saving per month. A processing fee is charged in full on day one. Whether the saving ever catches up with the fee depends entirely on how many months are left on what you already owe, and on short remaining tenures it does not.

Suppose everything you owe blends to 13 percent, ₹4 lakh in total, and an offer comes in at 12 percent with a 2 percent fee. One point lower looks like a win. Here is what it is actually worth over the months you have left, with the new loan taken over the same number of months so the comparison is fair.

Months left	Saving at 12% vs 13%	Fee with GST	Net
12	₹2,249	₹9,440	−₹7,191
24	₹4,496	₹9,440	−₹4,944
36	₹6,907	₹9,440	−₹2,533
48	₹9,478	₹9,440	+₹38

₹4 lakh, reducing-balance, illustrative rates. Saving is the difference in total interest over the same tenure. Fee is 2% plus 18% GST.

At 2 percent fee, a one-point improvement needs about 48 months of remaining tenure just to break even. With three years left you lose ₹2,533 by consolidating. With one year left you lose ₹7,191
At a 1 percent fee the break-even drops to about 26 months. The fee is the variable that decides this, not the rate, and it is the one people do not negotiate
The saving looks bigger if the new loan is longer than what you have left. It is not bigger. It is the tenure trap wearing a different shirt, and the table above only looks fair because the months are matched
Consolidation is for unsecured debt: personal loans, card balances, pay-later. A consumer durable loan, a gold loan, a loan against securities and a home loan cannot go into it, and a consolidation quote that seems to cover one of those is quoting something else

The ledger to fill in before you sign

One column per offer, one column for what you owe today. Every line is a number you can get from the sanction letter or your existing statements, and every line is one you can check with the reducing-balance EMI formula on a spreadsheet.

Rate, tenure and EMI for each offer, and the tenure re-quoted to match the shortest one you can carry, because offers at different tenures cannot be ranked
Processing fee in rupees with GST, and the amount that will actually land in your account after it is deducted
Foreclosure charge as a percentage, the month from which it is allowed, and the part-payment limit per year without charge
Total amount payable, plus the fee, for each offer at the matched tenure. This is the row that ranks them
Your current position on the same row: total interest still to be paid across every loan and card you hold, over the months actually left. If the winning offer's row is not clearly below this one, the answer is none of the above
The EMI of the winning offer added to every EMI you will still be paying, as a share of monthly income. If it crosses roughly half, a lender may sanction less than quoted, and the ledger changes

Common questions

Is the debt consolidation loan with the lowest interest rate the cheapest one?

Not by itself. On ₹6 lakh, an illustrative 10.5 percent offer over 60 months with a 3 percent fee costs ₹1,95,020 in interest and fees, while a 12.5 percent offer over 36 months with a 1 percent fee costs ₹1,29,678. Rate only ranks offers when tenure and fee are the same, so compare total amount payable at one tenure.

How do I compare two consolidation loan offers with different tenures?

Ask each lender to re-quote at the same tenure, ideally the shortest EMI you can carry, then compare total amount payable plus fee. Re-quoted at 36 months, the same three offers rank in a different order: the 10.5 percent offer comes first at ₹1,23,293 all-in, because its only real problem was the 60 months attached to it.

Does the processing fee change the effective interest rate?

Yes, because it is deducted before disbursal. Borrow ₹6 lakh at 11.5 percent over 48 months with a 2 percent fee and you receive ₹5,85,840 but repay EMIs sized on ₹6 lakh; the rate on the cash you actually got is 12.78 percent. Solve for the rate on the net amount received to compare offers with different fees.

When is a debt consolidation loan not worth it?

When the fee is larger than the interest the lower rate saves over your remaining months. Moving ₹4 lakh from a 13 percent blended rate to a 12 percent offer with a 2 percent fee saves ₹6,907 over 36 months against a ₹9,440 fee, a net loss of ₹2,533. At that fee it needs about 48 months of remaining tenure to break even.

How much is free foreclosure worth on a consolidation loan?

The charge you would otherwise pay on the principal outstanding when you close. On ₹4 lakh outstanding, a 4 percent foreclosure charge is ₹16,000, or ₹18,880 with GST. If you expect a bonus in the second year, that is the amount by which a free-foreclosure offer beats an otherwise identical one, and it is often larger than the difference in processing fees.

Three offers on ₹6 lakh: the lowest rate cost ₹65,342 more than the highest, because it came with 60 months and a 3 percent fee. Rank offers by total amount payable at a matched tenure, price the foreclosure clause against what you expect to receive in year two, and check the fee against the months you have left before you move at all. Where the arithmetic says stay, stay. Informational page, not financial advice. Rates, fees, foreclosure terms and eligibility differ by lender and applicant and are set at the lender's discretion — your sanction letter governs, not this page.

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Debt consolidation loans: how to compare three offers

The five numbers that define an offer

Three offers on ₹6 lakh, compared

The tenure trap

Foreclosure: the clause you read for year two

When consolidation is the wrong answer

The ledger to fill in before you sign

Common questions

Is the debt consolidation loan with the lowest interest rate the cheapest one?

How do I compare two consolidation loan offers with different tenures?

Does the processing fee change the effective interest rate?

When is a debt consolidation loan not worth it?

How much is free foreclosure worth on a consolidation loan?

Personal Loan vs Credit Card: Consolidate Your Debts

The Credit Card Trap

The Unyfy Solution

Interest Rate Comparison

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