Essentially, renewing or rolling over a payday loan is like paying a fee to push back the payment deadline. But the fee you pay does not reduce the amount owed. Here’s how a rollover works.
In states where the lending laws permit a rollover, some payday lenders allow borrowers to renew or rollover their loans if they cannot afford to pay back the money. However, the borrower has to request this rollover a few days before the deadline. Rollovers add to the cost of a loan but can be incredibly helpful if you can’t meet your repayment obligations as agreed.
Potential Downsides to Refinancing, Renewing, or Rolling Over a Payday Loan
By rolling over/extending your payday loan term, you inadvertently increase the cost you have to pay on the loan. There are a few other charges and extra fees associated with a rollover too.
Legally, a payday lender isn’t allowed to offer a borrower more than one rollover since the more times a borrower refinances their loan, the more interest they have to pay on the loan. Still, a rollover may be the best option for you, depending on your unique financial situation
Alternatives to Renewing or Rolling Over
We recommend speaking to a financial advisor if you fall behind on repayments, are stressed about compounding debt, or are maxed out on rollovers. Some charities and non-governmental organizations also offer free financial advice to those who need it.
Before requesting a rollover, you could even ask the lender if they have a ‘grace period’ after the payment deadline. Some lending companies would be more than willing to work with you rather than initiate long, tedious debt collection processes.
When you're struggling to repay your debt, one thing you can do is communicate with your lender. Payday lenders typically take uncooperative borrowers to a court or report to any of the major credit reporting agencies. Legal proceedings are usually time-consuming and stressful while reporting to credit agencies can have a negative impact on your credit ratings.
A final resort would be filing for bankruptcy. Bankruptcy is a legal course undertaken by individuals or companies to free themselves from certain debt obligations. However, bankruptcy can significantly negatively affect a borrower’s credit score, reducing their chances of qualifying for a loan in the future.