The Hood River glacier. (Hood River, Or.) 1889-1933, 1914-06-18
FIVE RULES FOR
BORROWING MONEY

Five bulletins designed TO convince
farmers that there is no magic about
credit are set down in Farmers Bule-
tin 593 How to Use Farm Credit,
which the United States Department of
Agriculture has just published. Un-
less the farmer who is thinking of bor-
rowing money fully understands these
rules and is willing TO be guided by
them, the government 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 impor-
tant are:
j. 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 Improvement for
which the money is borrowed.
3. Provision should be made in long
time loans for the gradual reduction of
the principal.
The first rule is of course the key to
the wise use Of credit. Between bor-
rowing money to spend on ones self
and borrowing money to buy equip
ment OF some sort with which TO make
more money there is all the difference
between folly and foresight, extrava.
gance and thrift. If the money is
borrowed for wise purpose it will
produce enough to pay back principal
and interest and leave fair margin
OF profit for the borrower into the bar
gain. IL 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. 1t is the repayment of the princi-
pal that is the chief difficulty.
Rules and deal with the most sat
isfactory ways of repayment. Under
meath them both is the same principle:
The loan must be repaid with money it
earns itself. For 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 it never will. The loan, there
fore, should be entirely repaid before
the ten years are up or the farmer will
lose money on the transaction, paying
out interest 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 repaid in installments so
that the amount of the loan is cOntinu-
ally 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 bor-
rover definite revenue each year.
Tables showing the payments required
to pay off principal and interest in
various periods of time are appended to
the bulletin and are recommended to
the serious consideration of everyone
who cOntemplates borrowing money.
The bulletin advises the farmer to Sc
cure the lowest possible interest. At
first sight this seems too obvious to be
worth mentioning. OF course, the in
terest should be as small as possible.
Everybody knows that-except the
lender. But if the other rules are OBJ
served, if the borrower manages his f.
nancial affairs soundly, he will be sur
prised to find how much easier it is to
obtain favorable terms. The right
kind of lender does not want to fore
close mortgages; he wants his money
back with fair profit, like any other
merchant. For money that is bor-
rowed wisely, for money that is sure to
be repaid, he charges low interest.