Loan consolidation in India: who gets the starting rate, and what you pay

A consolidation loan in India is almost always an unsecured personal loan whose money you use to close other unsecured debts: credit card balances, other personal loans, pay-later dues. Consumer durable loans, gold loans, loans against securities and home loans are not closed this way, so none of them appears in the examples here.

The floor of a lender's range goes to the profiles that cost it least to lend to. Lenders do not publish one common rulebook, and the cut-offs differ, but the same traits recur: a long credit history with no recent missed or late payments, salary credited from an employer the lender rates well, existing EMIs that take a small share of income, and often an existing salary or savings account with that lender, which lets it see your credits for itself. An applicant carrying high card balances, which is the person most likely to be consolidating, usually does not fit that description on the day of applying.

The rate you are actually offered, and its all-in cost, reach you in writing before you sign. RBI's circular on Key Facts Statements for loans and advances (https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12663&Mode=0), which applies to retail term loans sanctioned from 1 October 2024 by banks and NBFCs, requires lenders to give borrowers a KFS showing the Annual Percentage Rate, defined as the annual cost of credit including the interest rate and all other charges. The same circular says fees not mentioned in the KFS cannot be charged later without the borrower's explicit consent.

Suppose ₹4 lakh has to reach your old lenders to close them. The lender deducts its fee from the disbursal, so to put the full ₹4,00,000 in your account after a 2 percent fee plus 18 percent GST (2.36 percent of the loan in all), you have to borrow ₹4,09,668. Here is that loan over 36 months at the three illustrative rates.

There are two ways to run the same loan, and they cost the same in rate terms. Borrow exactly ₹4 lakh and you receive ₹3,90,560, because ₹8,000 of fee and ₹1,440 of GST come off first; the old lenders are still owed ₹4 lakh, so ₹9,440 has to come from your pocket. Or borrow ₹4,09,668 and pay EMIs on money that never reached you. Either way, at the floor, the rate on cash received is 11.64 percent, because the fee is a fixed share of the loan.

What changes the effective rate is tenure. A fee is paid once, so the shorter the loan, the fewer months it is spread over and the harder it bites.

The hurdle is the rate an existing debt must be above for moving it to pay over the same 36 months. With no charge to close the old debt, as with a card balance or pay-later dues, the hurdle equals the rate on cash received. With a closing charge, the new loan must also fund that charge, which lifts the hurdle further. Here, an illustrative 4 percent plus GST on the old loan's balance.

Now a realistic ₹4 lakh: ₹2,40,000 across card balances and ₹1,60,000 on an NBFC personal loan at an illustrative 18 percent with 36 months left and a 4 percent plus GST foreclosure charge. Staying put, with the cards cleared in 36 equal payments at 4.13 percent a month and the loan run to term, costs ₹2,25,202 in card interest and GST plus ₹48,238 of loan interest: ₹2,73,440 in all, at ₹18,707 a month. The blended simple rate across the two is 36.94 percent.

Moving everything needs ₹4,07,552, because closing the loan adds a ₹7,552 charge, and so a loan of ₹4,17,403 after the fee.

In the mix above, ₹2,40,000 on cards costs ₹9,912 a month in interest and GST if the balances sit while you wait. Three months of waiting is ₹29,736, and six months is ₹59,472. Moving the whole mix at 13 percent instead of 16 percent saves ₹21,985 over three full years. Unless a better tier is weeks away and certain, taking a decent offer now and prepaying it later beats waiting on a card.

The other cheap route is to borrow less. Every ₹1 lakh of savings you put against the debt is ₹1 lakh you do not borrow. At 13 percent, borrowing that ₹1 lakh as cash over 36 months costs ₹24,230 with the fee, against ₹23,144 an illustrative 7 percent fixed deposit would earn in the same time before tax, so the saving is ₹1,086 before tax and more after it. At 16 percent the gap is ₹6,481. Keep at least a month of committed outgoings back: using the whole buffer and then meeting a bill on a card undoes the move.

The arithmetic above says when a move pays. Four situations where it does not, whatever the headline rate.

The two numbers this page turns on are the rate on what you already owe and the rate you would actually be offered. Unyfy shows both before you apply anywhere.

From your bank and card transaction emails and, on Android, transactional SMS, it lists the loans and cards it can see with a blended rate across them and a live FOIR, the share of income your EMIs already take. It flags any loan priced above what the same borrower would be offered today, and says whether switching is worth it after the fee; where the move does not pay, it says so. For the offer side, the eligibility check pulls your Equifax credit report as a soft enquiry, which does not affect your score, and shows the score and the accounts behind it, including any overdue, settled or written-off account a lender will see. It then compares consolidation offers from 15+ banks and NBFCs, and only the one lender you choose to apply with runs a hard enquiry.

Unyfy is not a lender. The rate is set by the lender at sanction and appears in that lender's KFS. Install Unyfy on Android, or use the web app at app.unyfy.co.in on an iPhone.