Ravindra borrows ₹5000 at 10% per annum compound interest. He repays ₹2000 at the end of the first year and ₹2000 more at the end of the second year. To clear the loan completely at the end of the third year he must pay (in ₹):

Interest is charged each year on whatever is still owed. Year 1: 5000 → 5500, pay 2000, leaving ₹3500. Year 2: 3500 → 3850, pay 2000, leaving ₹1850. Year 3: $1850\times 1.1$ = ₹2035 clears the loan. Letting the whole ₹5000 compound for three years and then subtracting the ₹4000 repaid gives 6655 − 4000 = ₹2655, but money returned stops earning interest for the lender; and ₹1850 is the balance BEFORE the third year's interest is added.