Farm Loan Calculator
The practice of farming has been around for thousands of years. It is a long-standing tradition of man that has influenced the types of societies we live in, as well as how economies are shaped.
Farmers grow, produce, and manufacture many of the foods we see on our tables as well as commodities for other farmers and industries. These days farmers use tools not only in their fields, but also online to help them run their businesses.
Before we take a look at an important financial tool in many farmer’s arsenals, a farm loan calculator, let’s take a quick peek at a historical overview of American farming.
In the early days of American farming, settlers planted barley and peas from England, and maize from the Indians. As America grew and more people began emigrating to the country, farming evolved into large plantations where tobacco, rice, and cotton were just a few of the crops grown. Outside of this, the vast majority of farms were used to supply food for families as well as some trade, and a few exports.
Fast forward to the post-Civil War era and farming saw a huge expansion as farms tripled to 6 million in the U.S. by 1905, and people living on farms ballooned to 31 million. This drove the economic impact of farms up to $30 billion.
From there, farming took a small down-turn, but met another resurgence during World War I when Europe was unable to produce everything that they needed to sustain their countries and turned to the United States for exports. This led to the agricultural revolution, the New Deal farm and rural programs and helped truly shaped American farming into what we know it as today.
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Using A Farm Loan Calculator
Whether you are a farming hopeful, beginning rancher, or an experienced farmer with years under your belt and a large ranch of your own, you may find yourself in need of
farm financing. These are loans that are available to all types of farmers to help them start, expand, repair, and run their farms.
If you are seeking capital from a lender, whether it be the bank, a broker, or the USDA, being armed with as much knowledge as possible will help you ensure that you are getting the best financing for yourself and setting your farm up for success.
So, what kind of information might you need when thinking of getting a farm loan? For many, its financial information they are looking for. This is where a farm loan calculator can come in handy.
If the ultimate goal is to know what kind of payment you will need to make each month you can use a farm loan calculator to input several different
financial factors, allowing you to determine what that payment would be.
There are several pieces of information a farm loan calculator requires the user to input in order to determine financial outcomes. The first is the principal amount that someone is looking to borrow. This directly refers to the amount of money or capital the borrower is looking to acquire from a lender. This lender could be a bank, broker, or the USDA.
Farm Loan Calculator Breakdown
Principal amounts are referred to as loans. Loans come in many different styles, for many different situations. There are loans geared toward the purchase of a ranch or farm, there are loans reserved for minorities and women, loans for youth farmers, and loans for farmers who have need assistance for emergencies that have occurred on their ranches.
The next piece of information that would be important when using a farm loan calculator is interest rate. Here is where it can get a little tricky, because sometimes you won’t know what type of interest you would qualify for. Currently, the USDA lists their rates somewhere between 1.500% and 3.850% depending on the type of loan and credit worthiness.
Interest, can be calculated a couple of ways. There is simple interest and compound interest. Simple interest is just calculated on the principal each payment period for the term of the loan.
Compound interest is a little more complicated. It is calculated including not only the principle but also the unpaid interest each month.
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There are also two types of interest rates. These are fixed interest rates and variable interest rates. For a fixed interest rate, interest is calculated at the same rate every payment period over the lifetime of the loan.
For variable interest, interest can change each payment period over the lifetime of the loan. Variable interest typically fluctuates with market rates and credit score changes.
Additional Information For Farm Loan Calculator
The next input on a farm loan calculator would be the number of payments or term. This is just the time breakdown of the life of the loan. It can vary from loan to loan, but most lenders set their loan repayment terms at monthly and usually farm mortgage loans are a 15 or 30-year loan.
Other, smaller, or non-mortgage style loans may have a different repayment length, and it is best to work with your lender on these options.
Once you have input all your information into a farm loan calculator you will be able to determine your rough, monthly payment. Many lenders offer this tool on their websites with the warning that your payment is just an estimate.
They will remind you that your actual payment amount may vary depending on interest rates, closing dates, or other factors.
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Farm Loan Calculator Outputs
The other output that a farm loan calculator will give you is often an
amortization period. The word amortization refers to the process of calculating the cost of an intangible asset over a period of time, and also refers to the repayment of a loan’s principle over a period of time
What this means is that you can get a breakdown of how your payments will be allocated to principle and interest over the life of the loan.
For instance, if you borrowed $10,000 over 10 years with an interest rate of 3.5%, you could expect, based on the farm loan calculator, that your monthly payment would be $99.11. In the first year, and first payment, you would expect to pay $29.57 in interest on the loan and $69.54 in principal on the loan.
Fast forward to the last payment and you would see that you could expect to pay $0.29 in interest on the loan and $98.82 in principal. An amortization feature on a farm loan calculator would not take into account refinancing, or any early repayment, but it still gives the user a great idea of the progress that they would be making each loan payment.
For many farmers, part of the joy of their work comes from being a part of an incredible American tradition that makes a huge difference in the daily life for all. However, many farmers don’t make it through their career without having to borrow capital from a lender.
Using a farm loan calculator can help you determine not only what your monthly payment may be, but also how much you can afford to borrow to begin with. It will also give you a good idea of your principal and interest breakdown over the life of your loan.
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