Why the Concept of IRR Is the Best Kept Secret

Because the lay person cannot calculate IRR, it makes him feel that the lender is fleecing him

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Every January, Bertie is made to sit for the salary revision conversations for his household staff. To be sure, the conversing is done by the missus. Bertie’s brief is to sit with a solemn face and lend a degree of officiousness to the proceedings. He was thus seated with one eye on the gripping Test match being streamed on his phone when Santosh, their Man Friday, directed a ‘dekho na bhaiya’ at him. He was shown some papers that seemed to be an account statement of Santosh’s housing loan.

Bertie wasn’t certain what exactly he had to ‘dekho’ so he looked at the missus for help. A cloud of irritation gathered on her face that soon made its way into her voice when she said ‘fir se batao bhaiya ko.’ After much back and forth, Bertie understood that Santosh was complaining about the housing loan. He had borrowed six lakh from the housing finance company and though he had repaid almost nine lakh in total, his loan was still not repaid. Bertie tried to explain the concept of internal rate of return (IRR) to Santosh but his expression told Bertie that he was not getting through. This EMI albatross, it seems, was his main argument in asking for a bigger raise.