All About Interest Rates: Understanding Input Financing

When you apply for any kind of financing or loan, understanding the interest rate you’re being offered is key to knowing how much you’re going to really pay over time. When financing your operation’s inputs, the rate and loan terms will help you compare offers between suppliers and determine overall costs.

Fixed vs. Variable Interest Rates

There are generally two types of interest rates: variable and fixed. The difference between these two types of interest rates is whether or not they can change over the life of the loan.

For a variable rate, you may have noticed financing offers like “PRIME Interest Rate”, or “Prime + 1%”. That rate is based on a benchmark rate called the PRIME rate.

Unlike variable rates, fixed rates won’t change over time--whatever is on offer is set in stone for the life of the loan. You might see something on your credit card like “12% APR”, or your mortgage for “4.0%.”This year, interest rates on FBN extended terms will be fixed, meaning that they won’t fluctuate with the markets. You’ll know upfront exactly what your rate will be and what rates will be available throughout the entire year. We’re offering fixed rates to help you make better, more predictable plans for your business. And in today’s market, predictability is a great thing to have.

How Interest Rates Are Determined

Interest rates are heavily influenced by decisions made by the U.S. Federal Reserve. When determining FBN extended terms rates, we look closely at financial markets changes to the interest rate over the next year.

After years of record low interest rates, the Federal Reserve has increased rates twice in 2018, with more increases predicted through the end of the year. The Fed has stated that it intends to raise rates three more times in 2019, although none of these rate hikes are set in stone yet. When we set rates for our extended terms, we look at what interest rates are today as well as the possibilities for them to increase and decrease over the coming year. There are benefits and drawbacks to both variable and fixed interest rates, so make sure you consider all options before making your decision

Loan Terms and How Much You’ll Really Pay

When looking at interest rates, you should consider how much you’ll really pay based on the amount of time until you pay back the full amount. Interest rates are often presented as annual rates, which means that the number you see is how much interest you would pay if you had 12 full months until paid in full.

However, when you are financing inputs, you may be paying the full amount back in less or more than one year. For example, if you buy qualified inputs using FBN Direct Extended Terms on April 1 2019, your annual interest rate will be 7.5%. But in actuality, you will only pay around 5.0% if paid on time by December 1 2019, which is 8 months at the annualized rate of 7.5%

0% Is Easy to Understand

Of course, the easiest interest rate to understand is 0%, and that’s what you’ll get if you buy your inputs using FBN extended terms by December 20, 2018. You won’t have to pay until December of 2019, and your rate for that entire period will be 0%. Talk about simple! FBN strives to be as transparent as possible so you can make the best decisions for your operation - and that’s what being part of our network is all about.

Do you have questions or interested about our program for next year? Feel free to reach out to out to your rep directly or email support@farmersbusinessnetwork.com


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