Pullman herald. [volume] (Pullman, W.T. [Wash.]) 1888-1989, 1914-07-10
FIVE RULES FOR BORROWING
MONEY

Afo luleS Unsigned TO convince
farmers that there is no magic about
credit are set down in Farmers Bull
letin 593, How to Use Farm
Credit" which the department 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
government S 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 i'm
portant are:
l. Make sure that the purpose for
which the borrowed money is to be
used will produce a return greater
than needed to pay the debt.
2. The length of time the debt is
to run should have a close relation to
the productive life of the improve
ment for which the money is bor-
rowed.
3. Provision should be made in
longtime loans for the gradual re-
duction 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 borrowing money to buy
equipment Of some sort with which to
make more money there is all the
difference between folly and fore
sight, extravaganza and thrift. If
the money is borrowed for a wise
purpose it will produce enough to
pay back principal and interest and
leave fair margin of profit for the
borrower into the bargain. If it is
borrowed for a 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
1t is the repayment of the principal
that is the chief difficulty.
Rules 2 and deal with the most
satisfactory ways of repayment.
Underneath them both is the same
principle The loan must be repaid
with the money it earns itself. For
example, if the money is used to buy
machine that will last 10 years,
the machine must earn enough in
| that time to pay for itself or it never
will. The loan, therefore, should be
entirely repaid before the 10 years
are up or the farmer will lose money
OF the transaction, paying out inter-
est for no benefit in return. On the
other hand, if 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 rails
ing it elsewhere. Rule provides
for some form of amortization, the
system by which the principal is re-
paid in installments so that the
amount of the loan is continually di-
minishing and in consequence the in
terest charges also. Such a system
is continually diminishing and in
consequence the interest charges
also. Such a system is quite feasible
when the loan is really productive
when it returns to the borrower q
definite revenue each year. Tables
showing the payments required to
pay off principal and interest in
varying periods of time are appended
to the bulletin and are recon mended
to the serious consideration Of every
one who contemplates borrowing
money. The bulletin also advises
the farmer to secure the lowest pos
sible interest At first sight this
seems too obvious to be worth men
tioning. OF course, the interest
should be as small as possible
Everybody knows that-except the
lender. But If the other rules are