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Old 30th October 2007, 13:39   #16
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Use discounted cash flow model on the EMI payments for loans of 11 lakhs.

The difference, I repeat this, is going to exist but is going to be much lower than one EMI installment. Works out to be a difference of about 14k. Still they are fleeces :(

Last edited by thefreak : 30th October 2007 at 13:43.
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Old 30th October 2007, 14:16   #17
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If you have a EMI calculator excelsheet, just do a check on what would be the interest payment for that 14K extra. It would have bumped up the Lending Interest Rate by more than 1%.

So actually one pays Rs.xxxxx/- as interest for money that they have never borrowed.

Btw after you pay this Pre EMI do you still pay 12/24/36 EMI's or is it one less. If you are paying 12/24/36 after the PRE EMI then its a free lunch for the bank.
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Old 30th October 2007, 14:45   #18
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Quote:
Originally Posted by csentil View Post
If you have a EMI calculator excelsheet, just do a check on what would be the interest payment for that 14K extra. It would have bumped up the Lending Interest Rate by more than 1%.

So actually one pays Rs.xxxxx/- as interest for money that they have never borrowed.

Btw after you pay this Pre EMI do you still pay 12/24/36 EMI's or is it one less. If you are paying 12/24/36 after the PRE EMI then its a free lunch for the bank.
If they start taking such free lunches then I would join the banks tomorrow

14k is the net extra interest amount paid over the duration of the loan. As I said they are fleecing but not that much (14k over a period of five years)
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Old 30th October 2007, 19:06   #19
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Quote:
Originally Posted by thefreak View Post
If they start taking such free lunches then I would join the banks tomorrow

14k is the net extra interest amount paid over the duration of the loan. As I said they are fleecing but not that much (14k over a period of five years)
First of all iam not an accountant but scientist. so i do not understand the discount cash flow system.
but here is what i feel
use any EMI calculator and check what is the EMI for 11 lakhs for 60 months @10.75% It is 23779 not 23568
so how did the bank got 23568 as EMI for 11 lakh loan for 60 months
try to see what is the EMI for 1076432 ( i.e 1100000- 23568 first EMI) for 59 months @10.75% IT IS rs 23568.
so the bank is actually calculating for 59 months for 1076432 not for 11 lakhs for 60months. the calculation is only for post EMI method only. so the bank knows what it is doing.it is simple collecting down payment from the customer and giving the rest as loan for 59 months showing it as less interest rate
i am at loss to understand what is this discount cash flow which states that this beneficial to customer. it is indeed beneficial but to BANK not customer
so as per this what i have said as third senario in my psot is correct and one is paying around 23 to 24 K more not 14K.
even if we agree your estimate of 14 K why should we pay 14 k extra. this not a small amount
further you have stated in earlier post that total outgo for the customer is less in pre EMI mode.
there is no EMI calculator for PRE EMI mode. what is marketed is post EMI mode only customer is made to believe it is less. Because to calculate interest one need period of loan. without which how to calculate.the first EMI does not have any period ( one can do if loans are sanctioned for minutes and hours instead of months and years)
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Old 30th October 2007, 20:01   #20
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Quote:
Originally Posted by rkg View Post
i am at loss to understand what is this discount cash flow which states that this beneficial to customer. it is indeed beneficial but to BANK not customer
so as per this what i have said as third senario in my psot is correct and one is paying around 23 to 24 K more not 14K.
even if we agree your estimate of 14 K why should we pay 14 k extra.
Again! First and foremost when did I say that it is beneficial to the customer? Read my posts carefully.. very carefully. You will find that I have through out maintained that there is a difference. Further what are you talking about as 23k mate? You have missed a trick here. It indeed is 23 k more but also one month less if I am not mistaken?? Did you account for that?

Also simply put we shouldn't be paying 14k more! As simple as that. But the difference that you are stating of 23k is high. Hence I remarked.
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Old 30th October 2007, 20:29   #21
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Originally Posted by thefreak View Post

For example on a loan of 11 lakhs @ 10.75% pre month EMI scheme would get you an EMI of 23,568 and post month EMI would get you an EMI of 23,779.

Net payment in starting month EMI would be 1,414,116.81 and in ending month EMI it would be 1,426, 784.94 (inclusive of all payments).
The difference between the schemes is not as much as people make it out to be.

PPS: And dont start looking at things from the banks perspective. Look at it from your perspective.
this does appear you are implying Pre EMIis better .

"Also the simple logic is true if you are paying the same amount of money whether it is the begining of the month or end of the month. The difference here is that you are paying lesser amount for the same loan if you are paying begining month EMI."

this was in one of the posts made by you in this thread


In pre emi mode as per your own post you are paying 1414116. the actual amount of loan taken by you is 1076432(1100000- first EMI of 23568).so net interest paid is 1414116-1076432 =337684

now i will take a loan for 1076432 same as yours for 59 months ( no extra month here )
my total out go is 23568 X 59 =1390512
total interest paid is 1390512-1076432 =314080

the difference in interest between two modes is 337684-314080= 23604
here the duartion is same for both modes 59 months. then where is discount for extra duration? the difference is 23604/=
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Old 30th October 2007, 21:03   #22
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damn these banks.
they made it affordable for me to buy a car,
and making a damn profit in the deal.
useless lot i say.

Dude, you wnat a car, they got a service,
they charge.
Some better some, less.
and yes they use some tricks in the fine print

look at it like this
what is the costof the car
and whats the final price you are paying
the difference is the interest.
whether you pay it on the 1st or last of the month
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Old 31st October 2007, 16:29   #23
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Originally Posted by rkg View Post
In pre emi mode as per your own post you are paying 1414116. the actual amount of loan taken by you is 1076432(1100000- first EMI of 23568).so net interest paid is 1414116-1076432 =337684
I didn't quite get this calculation. How did you arrive at the figure of 337684? If you are saying that the loan is of 1076432 then you will also have to subtract the first EMI payment from the total payout of 1414116 if I am not mistaken?

Also sorry for some misinformation earlier on during this thread. Interest is not charged on the first EMI. Interest payments start in the second month begining and that EMI has the highest interest installment.

Last edited by thefreak : 31st October 2007 at 16:35.
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Old 31st October 2007, 20:31   #24
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Quote:
Originally Posted by thefreak View Post
I didn't quite get this calculation. How did you arrive at the figure of 337684? If you are saying that the loan is of 1076432 then you will also have to subtract the first EMI payment from the total payout of 1414116 if I am not mistaken?
:

my point is how much bank is actually giving you as loan and how much you are paying back to bank in total.

loan advanced by bank to you is not 11 lakhs in reality but 11 lakhs - first EMI

you are taking a loan of 1076432 from the bank and paying back the bank 60 EMI's( one in advnce rest in 59 months)

you can take the same loan(1076432) in post EMI scheme for 59 months with same EMI then you total payout to bank will be less by one EMI i.e 23568
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Old 1st November 2007, 11:13   #25
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Quote:
Originally Posted by rkg View Post
my point is how much bank is actually giving you as loan and how much you are paying back to bank in total.

loan advanced by bank to you is not 11 lakhs in reality but 11 lakhs - first EMI

you are taking a loan of 1076432 from the bank and paying back the bank 60 EMI's( one in advnce rest in 59 months)

you can take the same loan(1076432) in post EMI scheme for 59 months with same EMI then you total payout to bank will be less by one EMI i.e 23568
Quite agreed. The difference is that most of the private banks are giving pre month EMI's and have interest rates slightly lower and the PSU banks have slightly higher post month EMI's.

For example when I was takign the loan the rates were 10.75% for private banks and 11.25 for SBI. I would still have taken SBI but the amount of paper work was phenomenal and I did not have much of what they wanted. (I recently joined a job after studies so last 2 years bank statements is an issue and a whole host of other things).

That is one reason why some people are forced to go to private banks which are more accomodating.
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Old 4th February 2008, 12:55   #26
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Quote:
Originally Posted by rkg View Post
some simple math as per data given by you
Pre EMI scheme
EMI = 23568
No of months = 60
total out go= 1414080
actual interest paid= total out go- actual loan taken ( here 1100000-23568 first EMI as you are paying on first day it is as good as your making down payment and is fact) 1100000-1076432= 337648 is the total interest paid by you

Now Post EMI scheme
EMI = 23779
No of EMI = 60
total outgo = 1426740
actual interest paid= 1426740-1100000= 326740

Extra interest paid in pre EMI scheme for lower loan amount is
337648-326740= 10908 /=

in post EMI scheme one take more amount as loan and pays it over more duration of 30 days.

now the III senario ( this what actually the bank will get in pre EMI scheme)
(if a guy goes to PSU bank and makes a down payment of 23568 first EMI of pre EMI scheme and takes the rest as post EMI loan)

loan amount = 1076432 ( real loan amount)
rate = 10.75%
EMI =23568
duration= 59 months ( real loan duration)
total out go= 23568 X 59 = 1390512 ( real out go)
actual interest= 1390512-1076432 = 314080 ( actual interest that should have been paid)
what the bank is really collecting = 337648
excess = 337648-314080=23568
i hope iam clear
My first post in here. Let me see if I can do some value add without confusing much. Dood RKG, amazing you didn't notice the mistake you have made in your calculation, which I have highlighted in bold above.

Actual interest is 1414080-1100000 (and not 11 lacs- first emi....as that will account for double counting!). Strange you didn't notice that the claimed excess of 23568 happens to be closely matching the EMI figure :-)

Ok, for the guys who are slightly confused and don't know how EMI's are worked out, let me see if I can throw some light. First, a quick pointer. There is a simple formula in Microsoft Excel that helps you quickly calculate EMI's :-). Let me demonstrate how you use that formula for Pre-EMI and Post-EMI.

Pre-EMI formula =PMT(10.75%/12,60,-1100000,,1) = 23,568.61

Post-EMI formula = PMT(10.75%/12,60,-1100000) = 23,779.75

Now, for those who seriously think you are getting ripped off because of pre-EMI, try this.

Your actual loan amount is 11 lacs - first EMI = 1100000 - 23,568.61 = 10,76,431.39.

Now, imagine you pay 59 EMI's on this loan amount (which is the case actually), and let's apply the Post-EMI formula to this.

Post-EMI value = PMT(10.75%/12,59,-1076431.39) = 23,568.61.

In simple words, you are not getting ripped off. The difference in the two EMI values account for the difference in the lower loan amount. It is by design :-)

NOW, it is on you to ensure that the private banks apply the Pre-EMI formula and not the Post-EMI formula for calculation of the EMI if they want the first EMI upfront. And you now know how to check!

You can PM me if it is still confusing!

Srini

Ford Fusion TDCi or Hyundai Verna VGT.....that's the question....EMI vs VFM the confusing part

Last edited by Rehaan : 6th February 2008 at 20:15. Reason: Please limit your smiley useage to 2 per post. Read through the TBHP rules before proceeding!
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