694 AGRICULTURAL ECONOMICS 



224. HOW TO LOWER THE COST OF BORROWING 1 

 BY CHARLES G. TAYLOR 



As an example of the cost of getting money to the farmer, it is 

 known that for five year loans bearing 8 per cent interest, farmers 

 often pay a flat commission of 10 per cent, that is, the farmer gets 

 only 90 per cent of what he borrows, and pays 8 per cent on the face 

 of his note. If this expense is amortized for the five year period, the 

 effective rate of interest is 10.6 per cent. While all farm loans are 

 not made on this basis, the expenses and interest rates are higher than on 

 other investments. On very small loans the rate is often much higher, 

 yet there are frequently conditions present which justify the rate and 

 it is not with such cases that life insurance companies can be expected 

 to deal. The toll exacted from the borrower for services performed 

 prior to his receipt of the money depends frequently upon his neces- 

 sities as they are known to the loan broker. These loans are made 

 for short periods, sometimes for one year, frequently for five years, 

 rarely for longer periods, and generally do not give the privilege of 

 curtail before maturity. The first cost would not be so burdensome 

 if spread over a longer period. When the date of maturity of the 

 farmer's note arrives, frequently he has spent in other improvements 

 the surplus income that could have been applied to reduce his loan, 

 had he been required or permitted to do so, and he is far too frequently 

 forced to renew, and face a repetition of the heavy expense which he 

 paid to secure the first accommodation. Had the loan been curtailed 

 from time to time, a renewal without expense should not be difficult 

 in view of the increased security. Probably some education of the 

 farmer on the desirability of the annual curtail would be necessary in 

 some sections, but that the plan will, when understood, be received 

 favorably is illustrated by a recent prospective borrower who expressed 

 surprise and delight when required by a life insurance company to 

 make an annual curtail, stating that his debt would have been paid 

 years before had he been given that privilege. In the minds of many 

 gentlemen present such interest rates and commission charges will 

 no doubt be taken tcr indicate very poor security and very poor credit, 

 but these facts are true as to men who deserve credit rating of the 

 highest character, and have security to offer, the value of which can- 



1 Adapted from an address at the Ninth Annual Meeting of the Association 

 of Life Insurance Presidents, New York, December 9 and 10, 1915 (Proceedings, 

 PP. 45-58). 



