If a borrower is unable to complete repayment on a loan by its term end, lenders sometimes give short-term loan borrowers the option to renew, or rollover, the loan. Borrowers will have to weigh the advantages and disadvantages to the rollover option. Rolling over a loan may prevent a late payment remark from appearing on a credit history report, and gives the borrower more time to gather funds to complete repayment on their loan, but loan rollovers typically come with an additional fee charged by the lender. This fee does not apply to the principal and interest owed on the original loan. There are also advantages and disadvantages for the lender. By granting the borrower additional time for repayment there may be a greater chance that the lender will collect on the debt owed. Additionally, the lender collects the fee charged for the rollover benefit. On the other hand, rolling over a loan increases the overall amount owed to the lender, and if a borrower is ultimately unable or unwilling to make repayment, the lender will have to attempt to collect its debt, or sell the debt to a collections agency.

The Risk with Payday Loan Rollovers

The rollover feature is most commonly associated with payday loans. Payday loans are for small amounts that are repaid within a short period of time, typically due on the borrower’s next payday. They can be a quick cash solution for borrowers facing cash flow problems. With their high interest rates coupled with short repayment periods, these loans should be viewed only as a short-term option to help with cash shortages. Because payday loans are typically expected to be repaid in full within 2 weeks, paying back a payday loan can limit the funds a borrower has available to cover regular cost-of-living expenses. This short repayment window may be one of the reasons why many payday loans are rolled over.

A recent study performed by the Consumer Financial Protection Bureau found that 4 out of 5 payday loans are rolled over. Many times, borrowers end up owing more in fees than they do on their loan principal. As fees and interest build on rollover loans, the borrower might have difficulty paying off their payday loan debt. Struggling borrowers might take additional loans to pay off their payday loan debt, creating a cycle of debt that is difficult to stop.

Loan Options with Flexible Repayment

Borrowers looking for short-term loan solutions may consider personal installment loans. Installment loans range from smaller to larger amounts and are repaid in installments over a longer period of time than payday loans. The longer loan term and smaller repayment amounts – rather than a lump sum repayment – allow borrowers more flexibility with their cash flow. They may be able to stay current on their loan repayment and continue to afford daily necessities such as gas, groceries, and regular bills.

Before applying for any loan, borrowers should look carefully at all available loan options and make sure they understand the loan application requirements, approval factors, repayment terms, and charges that can include fees and interest. Borrowers should consider different loan types and lenders to ensure they are getting the right loan for their needs.

References:
https://www.consumerfinance.gov/ask-cfpb/what-does-it-mean-to-renew-or-roll-over-a-payday-loan-en-1573/
https://www.consumerfinance.gov/about-us/newsroom/cfpb-finds-four-out-of-five-payday-loans-are-rolled-over-or-renewed/

The content on this site is for informational purposes only and is not professional financial advice. Blue Trust Loans does not assume responsibility for advice given. All advice should be weighed against your own abilities and circumstances and applied accordingly. It is up to the reader to determine if advice is safe and suitable for their own situation.

Hummingbird Funds, LLC is a sovereign enterprise, an economic development arm and instrumentality of, and wholly-owned and controlled by, the Lac Courte Oreilles Band of Lake Superior Chippewa Indians (the “Tribe”), a federally-recognized sovereign American Indian Tribe. This means that the Hummingbird Funds’ installment loan products are provided by a sovereign government and the proceeds of our business fund governmental services for Tribe citizens. This also means that Hummingbird Funds is not subject to suit or service of process. Rather, Hummingbird Funds is regulated by the Tribe. If you do business with Hummingbird Funds, your potential forums for dispute resolution will be limited to those available under Tribal law and your loan agreement. As more specifically set forth in Hummingbird Funds’ contracts, these forums include informal, but affordable and efficient Tribal dispute resolution, or individual arbitration before a neutral arbitrator. Otherwise, Hummingbird Funds is not subject to suit or service of process. Neither Hummingbird Funds nor the Tribe has waived its sovereign immunity in connection with any claims relative to use of this mobile site. If you are not comfortable doing business with a sovereign instrumentality that cannot be sued in court, you should discontinue use of this website.