Tuesday, April 28

'Advance EMI'

I know most of you read my blog for my awesome sense of humor, Rushdie-like writing style and the secret hope that one day I may upload my belly dancing video, but today I explore another dimension of my brilliant mind - financial gyan.

Lesson of the day: Advance EMI

If you're poor but want to live richly (like me), you would, at some point in time, be forced to take a loan to buy something - a house, a car or a cycle. Whatever the object of your affections, a generous loan-wallah may have offered you a great deal with one or multiple 'advance EMIs'. Don't take it! Why? Explanation follows.

Assume the following amounts: Loan =L; Interest =I; Interest percentage=P

Yes, I know it isn't that simple, but just assume for now that it is and I may just upload that video you're looking for.

So you assumed P=(L+I)/100 (How gullible are you?)

Now onwards to explore the mystery that is the 'advance EMI'.

Illustration: Loan for a Phantom fake cigarette candy packet costing Rs. 10
Villain: Your friend, Mr Loanawallah
Victim: You

So you have this friend Mr Loanawallah, who you don't know very well. He seems to be doing quite well in life. He sees that you 'forgot your wallet' again and agrees to give you 10 bucks for the candy ciggies you so desperately crave. While you're merrily sucking away he says that he wants the loan to be returned at an interest rate of 20%.

Conditions of loan
L=10, I=2, P=20%


You need the Phantoms, so you agree.

Therefore, to summarize what we have is:
Interest=2 (total)
Interest rate (based on Loan and Interest above)= 20%
Tenure=12 months
EMI=Re. 1 for month for 12 months at the end of each month

Now Mr Loanawallah says, "My dear friend, why don't you go in for an advance EMI scheme?" You submit to his charms and give him one advance EMI... why did you do that?? I just told you not to! This is why he's doing well in life!

What you've done is reduced your loan from Rs 10 to Rs 9! That Re. 1 you just gave him, meant that you are borrowing ten bucks and giving him one buck to start with! So now the interest rate is effectively 22% as the interest of Rs 2 is on a loan amount of Rs 9! (2 / 9 = 22.2%) Yes, I did use the calculator for that one.

This is why you're poor. Don't do it! Advance EMI basically means that you're taking a smaller loan and paying for a bigger one.

Gyan ख़त्म।


  1. Damn.. I look for humour and I find Math!!

    Kidding.. interesting post.. for the lesser mortals..

  2. What to do J - my multi-talented mind oozes with genius of many streams.

  3. Simple but Excellent! But we Indians are like this Onlee... and will rush to such loans again and again.

  4. Thanks Ravi, even if this helps one person, it's worth it.