diff --git a/litgpt/chat/base.py b/litgpt/chat/base.py
index 81229ddd2a..7f2afc8f19 100644
--- a/litgpt/chat/base.py
+++ b/litgpt/chat/base.py
@@ -131,15 +131,15 @@ def main(
 
     fabric = L.Fabric(devices=1, precision=precision, plugins=plugins)
 
-    check_valid_checkpoint_dir(checkpoint_dir)
-    config = Config.from_file(checkpoint_dir / "model_config.yaml")
-
     checkpoint_path = checkpoint_dir / "lit_model.pth"
 
     # Merge if this is a raw LoRA checkpoint
-    if (checkpoint_path / "lit_model.pth.lora").is_file() and not checkpoint_path.is_file():
+    if (checkpoint_dir / "lit_model.pth.lora").is_file() and not checkpoint_path.is_file():
         print("Merging LoRA weights with the base model. This won't take long and is a one-time-only thing.")
-        merge_lora(checkpoint_path)
+        merge_lora(checkpoint_dir)
+
+    check_valid_checkpoint_dir(checkpoint_dir)
+    config = Config.from_file(checkpoint_dir / "model_config.yaml")
 
     with fabric.init_module(empty_init=True):
         model = GPT(config)
diff --git a/tests/test_chat.py b/tests/test_chat.py
index 4ac44aff56..3f456e7421 100644
--- a/tests/test_chat.py
+++ b/tests/test_chat.py
@@ -1,4 +1,5 @@
 # Copyright Lightning AI. Licensed under the Apache License 2.0, see LICENSE file.
+import os
 import re
 import subprocess
 import sys
@@ -15,6 +16,8 @@
 
 import litgpt.chat.base as chat
 import litgpt.generate.base as generate
+from litgpt import Config
+from litgpt.utils import save_config
 
 
 @pytest.mark.parametrize(
@@ -129,3 +132,26 @@ def test_cli(mode):
     output = subprocess.check_output(args)
     output = str(output.decode())
     assert "Starts a conversation" in output
+
+
+@patch("litgpt.chat.base.input")
+@patch("litgpt.chat.base.merge_lora")
+def test_merge_lora_if_needed(mocked_merge_lora, mocked_input, fake_checkpoint_dir, monkeypatch, tensor_like):
+    # these values will be iteratively provided for each `input()` call
+    mocked_input.side_effect = [""]
+
+    # pretend there is an unmerged LORA checkpoint
+    os.rename(fake_checkpoint_dir / "lit_model.pth", fake_checkpoint_dir / "lit_model.pth.lora")
+    mocked_merge_lora.side_effect = lambda _: Path(fake_checkpoint_dir / "lit_model.pth").touch()
+
+    config = Config.from_name("pythia-14m")
+    save_config(config, fake_checkpoint_dir)
+    monkeypatch.setattr(chat, "load_checkpoint", Mock())
+    monkeypatch.setattr(chat, "Tokenizer", Mock())
+
+    out, err = StringIO(), StringIO()
+    with redirect_stdout(out), redirect_stderr(err):
+        chat.main(checkpoint_dir=fake_checkpoint_dir)
+
+    assert re.match("Merging LoRA weights with the base model.", out.getvalue(), re.DOTALL)
+    mocked_merge_lora.assert_called_once()