New Delhi, April 5 -- Have you heard of the phenomenon of clearing off a personal loan by raising a fresh one? Or did you ever think of someone contemplating raising a new loan to clear off his myriad old debts? This is neither unusual not irrational. Let us explain why.

Suppose Mr Z has five different loan obligations from as many banks across durations. These are the loans he took over a period of time. Different loans carry different interest rates - 11 percent, 11.5 percent, 12 percent, 12 percent and 12.3 percent. Now, suppose one of the five banks is willing to offer a top up on his loans and this top-up amount is large enough to pay back all his current liabilities.

And icing on the cake is that the new loan bears an interest rat...