A payday loan rollover means your lender gives you longer to pay back your loan and extends the loan. Whilst this can be useful if you are struggling to repay your loan and need a bit more time, but this can make the loan more expensive over time because the daily interest continues to add up.
It is reported that 25% of payday loan customers will roll over their payments, as borrowers usually struggle to meet their initial repayment schedule. Many lenders are willing to offer payday loan rollover if you are having problems paying back the loan – but customers need to approach with caution because this is how a loan can become costly and cause people to fall into a spiral of debt.
Key Points:
- A rollover is a way to extend your loan for a longer period
- 25% of loans are rolled over
- The longer you have a loan, the more you spend on interest overall
- Rollovers and extensions can be dangerous for payday loans as the bill can really add up
Why Would I Need A Rollover?
If you do not have an emergency fund to dip into, rollovers are there as a safety net if you can’t afford to stick to the repayment plan that was outlined in your contract when you took out your loan.
With the average loan term in the US being two weeks, many borrowers get too two weeks later and find that they are struggling to pay. When this happens, one quarter of borrowers opt to rollover their debts.
You should be confident that you can afford repayments before committing to a loan.
How Does A Rollover Work?
When you are struggling to pay off your debts, you can contact your lender and explain that you’re having trouble paying back your loan. In a lot of cases, they may allow you longer to pay it back; this is called a rollover.
A rollover is a new, legally binding contract that gives you longer to pay off the originally agreed upon amount. It replaces the terms of your initial contract and should take a weight off of your shoulders.
Make sure you pay your debt back on time.
Am I Eligible For A Rollover?
Whether you are eligible for a rollover will depend on the customer’s profile and their track record so far with the loan. A lot of lenders are inclined to offer rollovers because they can be very lucrative in the overall interest, but it is not healthy for the customer, especially if they keep extending and extending.
Independent lenders will have different rules for deciding whether you are entitled to a payday loan rollover. The best way to find out if you’re eligible is to get in contact with your lender.
Be open and explain your difficulties to them, outlining how you think having more time will make your payment more likely. Often lenders will be keen to offer another solution to help you pay off your loan, so it’s always worth asking.
Are There Any Reasons Not To Get A Rollover?
Yes, as with any changes to a loan agreement, there can be negative impacts.
Because you will have longer to pay off your loan that means the money you have borrowed will accrue more interest. The longer it takes you to pay off your loan the more interest you will end up paying back to your lender. This ends up exceptionally expensive, as payday loans have an average of 400% APR attached.
Let’s say you’ve taken out a loan to borrow $1,000 and initially your loan term was 2 weeks. Then you would need to pay back interest of £153.8 in addition to the $1,000 you owe.
Let’s say you extend that to four weeks. You are doubling the interest payment. You now owe $1,000 plus £307.60 in interest, just because it’s taken you longer.
There are often also extra fees or charges associated with a rollover, and must hand you an information pamphlet (whether physical or virtual) about financial advice. Your lender will clue you in prior to signing a contract for a rollover.
Legally, your payday lender should not offer you more than one rollover. The more rollovers you have, the more interest you will be paying on your loans.
What Can I Do If I Cannot Repay My Loan?
While a rollover is one option and maybe right for some people, it’s worth considering all of your options if you are struggling financially.
You could contact a financial advisor. Many charities will offer free financial advice to those who need it, so getting the help you need doesn’t need to cost you. This provides you with professional advice as to how to manage your situation as best and as cheaply as you can.
You could seek a further loan, such as from a loved one, if you really can’t think of another option. When borrowing from friends and family, you should be sure that you can pay this back so that you don’t compromise your relationship.
Alternatively, you could approach a credit union and become a member. If you are a member, then you can seek a loan through them rather than seeking a payday loan. These are often smaller loans, but they are also cheaper.
Payday lenders do take uncooperative customers to court, so whatever you do, do not just stop paying your loans with no plan. the longer you let your debt build up the more difficult it will be to sort. If you’re feeling overwhelmed or unable to pay your debts, do you get in contact with a financial advisor and get the support you need.
