Before you spend on something, you usually calculate to see if you can afford it. It’s the same thing with farm loans. With a farm loan calculator, you get a rough estimate of your monthly payments if you borrow this much to
start, improve or rehabilitate your farm land. It’s a sneak peek into the outcome of getting a farm loan, factoring in the interest costs, at this time and in the long run.
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Farm Loan Calculator by Element
Whether you are applying for a farm co-op loan, a dairy farm loan, or a farm land loan, you’ll approach a lender or contact a broker to help you find a lender. You’ll do some shopping to compare loan terms and of course, rates.
In the course of your loan shopping, you start calculating the costs of getting this or that loan. This is the purpose of a farm loan calculator. You don’t have to write down the numbers or anything, you can input it or slide through the appropriate figure on an online tool that will do the math for you.
Supposing you borrow $10,000 to pay for extra workers at the farm. You may have approached the USDA Farm Service Agency and some private lenders and obtained quotes. One quoted rate was 3.5% for a five-year loan. Using the farm loan calculator, the result is $181.92 in monthly payment.
To illustrate how the monthly payment was arrived at, let’s break down the information to be entered in the calculator.
The $10,000 is the principal, the amount you’ll borrow without the interest. This amount in itself is your loan.
In the example, you were quoted 3.5% and over the life of the loan, you’ll pay $915.05 in interest costs alone. The interest rate is charged by the lender for borrowing the principal. Your loan rate can be variable or fixed rate.
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This is the process of repaying the principal and interest throughout the life of the loan. The loan above has a term of five years. Every time you make a monthly loan payment, it goes toward your principal and interest until such time as you have paid everything off.
The payment schedule elaborates on what happens to your first loan payment. Of course, this schedule could change if your loan frequency is bi-weekly, quarterly, semi-annual, or monthly as in the loan example.
Scope and Limitations
Like most loan calculators, it is assumed that the rate is fixed on the farm loan calculator. A fixed-rate loan calls for the same monthly payments throughout the life of the loan. When a loan has a variable rate, the payment can change and this changes the repayment amount too.
The interest rate is also
simple interest whereby the payment goes into the interest and the rest to the principal. This allows the interest to be paid in full every month and to not accrue unlike compounding interest.
More importantly, the results of the farm loan calculator are estimates only or ballpark figures. Your quoted rate is not your final rate, subject to market forces and your creditworthiness as assessed by the lender of your loan.
Based on your calculations, can you afford the loan?
Consult a lender today.