West Virginia argus. [volume] (Kingwood, W. Va.) 1877-1946, 1914-06-11
Five Rules For Borrowing Money


Washington, June s.-F'ive rules de-
signed to convince farmers that there IL
no magic about credit are set down i'm
Farmers Bulletin 5a3 "How to Use Farm
Credit" which the United States Depart
ment Of Agriculture has Just published.
Unless the farmer who is thinking of
borrowing money fully understands these
rules and is willing to be guided by them,
the Governments advice to him is:
don't. As it is, there are probably almost
as many farmers in this country who are
suffering from too much as from too little
credit.
OF these rules the three most important
are:
|. Make sure that the purpose for
which the borrowed money is to be used
will produce return greater than need
ed to pay the debt.
2. The length Of time the debt is TO
run should have close relation to the
productive life of the improvement for
which the money is borrowed.
IONlClOI HllOulu Dt Uldtlt III lONE-
time loans for the gradual reduction of
the principal.
The first rule is of course the key to the
wise use of credit. Between borrowing
money to spend on ones self and borrow
ing money to buy equipment of some
sort with which to make more money
there is all the difference between folly
and foresight, extravaganza and thrift.
If the money is borrowed for wise pur-
pose it will produce enough To pay back
principal and interest and leaves a fair
margin of profit for the borrower into the
bargain. III it is borrowed for foolish
purpose it will produce nothing and
consequently there will be nothing with
which to repay the loan. From this
point of view it matters comparatively
little whether the interest be high or low
II is the repayment of the principal that
is the chief difficulty.
Rules and deal with the most salts
factory ways OF repayment. Underneath
them both is the same principle: The
loan must be repaid with the money it
earns itself. tor example, if the money
is used to buy machine that will last
ten years, the machine must earn enough
in that time to pay for itself or il never
will. The loan, heretofore, should be
entirely repaid before the ten years are
up or the farmer will lose money OH the
transaction, paying out interest for no
benefit in return. On the other hand
II too early date is set for repayment,
the machine will not have had sufficient
| opportunity to make the requisite money
| and the borrower may have difficulty in
raising it elsewhere. Rule provides for
some form of amortization, the system
by which the principal is repaid in in
stallments so that the amount OF the loan
is continually diminishing and in consc-
quence the interest charges also. Such a
system is quite feasible when the loan is
really productive, when it returns to the
borrower defnit revenue each year.
Tables showing the payments required to
pay off principal and interest i'm varying
periods of time are appended to the buIle-
consideration of everyone who contem-
plates borrowing money. The bulletin
also advises the farmer to secure the
lowest possible interest. At first sight
this seems too obvious to be worth mem
| tioning. OF course the interest should
be as small as possible. Everybody
knows that-except the lender. But if
the other rules are observed, if the
borrower manages his financial affairs
soundly, ne will be surprised TO find how
much easier it is TO obtain favorable
terms. The right kind OF lender does not
want to forecose mortgages; Inc wants
his money back with fair profit, like
any other merchant. For money that is
borrowed wisely, for money that is sure
to be repaid, ne charges low interest.
This in fact is why the government has
published these rules for borrowers. 1t
IS not so much matter of driving y
shrewd bargain as it is Of observing n few
fundamental principles which alone can
make credit blessing and not curse