What is a Payday Loan Rollover and How Does It Work?
During your lifetime, you’re bound to experience financial difficulties. With life being unpredictable, it’s a reality we all need to face. When facing financial problems, people turn to loans to receive cash most quickly. First, let’s discuss so you can make the right decisions when times get tough.
The most common types of loans are personal loans or payday loans. These help you attain the money you need at a time of an emergency. Taking out loans requires you to pay back the cash borrowed, which sometimes causes more financial distress. In this case, lenders will offer you a loan rollover.
There are some advantages and disadvantages of payday loan rollovers, but first, you would need to understand what a rollover is and how it works.
What is a Payday Loan Rollover?
When taking out a short-term loan such as a payday loan, you’re required to pay back the money borrowed when you receive your next paycheck. Sometimes when you’re unable to pay the money back on the required payback date, you can opt to roll over the due date.
The fee you pay doesn’t reduce the payday loan amount. The loan amount will increase because the lender will charge additional interest for the renewal of the payback date.
Essentially, a rollover means you’re extending the period in which you’re required to pay the money back to the lender. During a rollover, you’ll receive a new repayment date, but you’ll have to pay an additional fee.
Rollovers are prohibited in 21 states, so you can only opt for a rollover if you live in a state where it’s legal. Check the regulations for payday loans in your state before applying for a rollover.
How to Rollover a Payday Loan?
1. You can roll over your payday loan, inluding a bad credit payday loan, either on the lender’s website, by phoning the company or going into the branch. It’s advised that you call the lender or bank three to four days before your payment is due.
The reason you should phone or visit the branch in advance is that short-term loans such as payday loans are usually paid by automatic debits. This means the money owed will be automatically paid to the lender from your account. You have to ensure this arrangement gets changed so the amount won’t be deducted.
2. Some loan companies or banks have websites that you can visit to update your details. The rollover fee varies depending on the company’s policies and the state you’re living in.
3. If you can’t roll over your payday amount via a website, you can phone the lender to renew the date. You can also visit the branch as you may have to sign an additional agreement form depending on the policies and procedures of the company.
4. You’ll be informed of the new payment due date and the additional interest rates you’ll be paying.
Advantages of a Payday Loan Rollover
Payday loans are probably one of the most accessible loans to sign up for, as your credit record won’t be checked. The interest rates are relatively low, and to roll over the repayment date is quite easy. The amount owed is paid in a once-off payment when you get your next paycheck.
The advantage of a rollover is that it can help you when you can’t pay back the full repayment amount. For a small fee, you can renew the date of the repayment to a time when you’re able to pay back the money owed.
But there are some drawbacks to this method as it could lead to further financial troubles and you can find yourself in a debt trap. Take a look at the disadvantages of payday loan rollovers and what alternatives you can opt for.
Disadvantages of a Payday Loan Rollover
Since you’re required to pay the full amount when you receive your next paycheck, the payday loan may limit your funds to cover the essential cost of living. This is probably the reason why four out of five payday loans are rolled over.
Every time you roll over your payday loan, the interest rates increase. So you’ll be paying additional costs on the repayment, which can put a more financial strain on you going forward. It can also affect your credit score quite significantly.
So, what can you do to avoid falling into a debt trap, which is one of the horror scenarios of a payday loan? There are alternatives you can opt for.
Are There Any Alternatives to Rollovers?
What you could possibly do to avoid a payday rollover is to budget your next paycheck, so you can pay the amount in full and still have the money you need to cover your cost of living.
To avoid payday loans altogether, you can also open up a savings account. A savings account allows you to save as much money as you want every month. You can earn interest on the money saved, which increases your savings amount. By saving, you would have the cash you need when there’s a financial emergency.
Another alternative is to refinance payday loans. Refinancing as a tool that’s commonly used in mortgage loans where either the term is extended, take on a higher principal, or both. With payday loan refinancing, you are applying to get more financing so that the time to repay the loan is extended.
Your existing finance charges must be paid before you can refinance your payday loan. Depending on state requirements, you might also have to pay a portion of your current loan’s principal off. You should check your state to make sure that payday loan refinancing is available.
It’s important to note the differences between refinancing, renewing, and a rollover loan. When you pay a fee to push out the due date of your payday loan, you are renewing it or getting a rollover. The amount that you owe is not reduced in this scenario, and you roll over debt from the original loan.
Refinancing is more likely to be used when your financial health has improved since the time you took out the original loan. The interest rates tend to be more favorable, as well. The lender that you use to for refinancing a payday doesn’t necessarily have to be the same one that you secured the original loan, as is the case with renewals and rollovers.
Prevent Unnecessary Interest Payments
It’s always best to budget for your cost of living well to avoid unnecessary stress. But sometimes taking out loans can be unavoidable when you’re facing unforeseen circumstances. When it happens, you should estimate what is the best option for you before settling on a loan.
Always check interest rates and how much you’re willing to pay towards the loan. Then stick to the agreement as much as you possibly can to prevent unnecessary interest payments. Start planning today!
References and Sources
- “Payday Lenders and Loans” – https://www.debt.org/credit/payday-lenders/
- “Alternatives to Payday Loans” – https://ptla.org/alternatives-payday-loans
- “Payday and installment Loan State Law Matrix” – https://onlinelendersalliance.org/wp-content/uploads/2017/07/2017-PDA-Installment-State-Matrix.pdf