Rollover in payday loans refers to the extension of the loan for another term. The borrower pays only the fees due and the principal remains unchanged. This option is usually available if the borrower is unable to repay the full amount of the loan.
Difference Between Rollover and Extended Plan
The main difference is in a fee that is charged for an extension.
Rollover means that the borrower pays only the fees for another term.
An extended payment plan gives borrowers more time to repay the loan and does not charge additional fees at all.
Another key difference between rollover and extended pay plans is the amount of time you have to repay the loan. With a rollover, the lender usually only gives you another two weeks or so before you need to start making payments again. In an extended plan, on the other hand, you may be given several months to repay the loan at a lower interest rate.
The Example of Rollover Calculation
If you need to rollover your payday loan, the calculation will depend on a few factors, such as the amount of the original loan, any applicable fees and interest rates, and the new repayment period. Generally, lenders will calculate your rollover fee based on cost of a loan.
For example, you have your $500 payday loan, after 2 weeks you need to pay $500 plus a $75 interest charge/fee (cost of a loan), you can rollover this loan just by paying a $75 fee, after the next 2 week you need to pay $500 plus $75 fee.
Roll-overs, as well as interest rates, are subject to state laws. Some states with restrictive policies prohibit such extensions, others only allow one, or several under certain terms. Before entering into any loan agreement it is necessary to check local state laws and regulations. Always read the loan contract carefully before signing it. Pay close attention to the points related to interest rates, repayment terms and the possibility of rollovers.
In a 2014 Consumer Financial Protection Bureau study on payday lending, 80% of payday loans were renewed or rolled back within two weeks. 60% of borrowers had fees higher than loan amounts due to their repeated use of payday loans.
Only 15% of borrowers repay their payday loan debts when they are due without borrowing more. 80% of borrowers that renew or roll over payday loans end up borrowing the same amount of money or more.
In states where low-cost repayment choices are accessible, many payday loan borrowers are not using them, continuing a cycle of high costs and debt.
In certain situations, payday lenders have allegedly withheld information about “no-cost extended payments plans” from consumers to increase profits.