What Is a Rollover and Why You Should Avoid It

What is a rollover?

In the financial world, rollovers take on many meanings. It is used in taxation and deferrals. The same is used in mortgage transactions. In the context of the payday loan industry, this refers to a fee to extend an existing loan. A related term is back-to-back loans, which is an advancement of a new loan to pay off an existing loan.

In both cases, the borrower will not benefit from a rollover other than extending the repayment date. For instance, if a lender allows a rollover for a $50 fee on a $500 payday loan and the borrower takes 3 rollovers, that would mean the original loan amount stays the same and the borrower is paying $150 more. With 3 rollovers, he would essentially be paying $650 plus interest on the original loan.

In the case of back-to-back loans, the borrower pays off the original loans but immediately borrows again. The concern with this is the charges associated with the new loan increases the borrower’s short-term debt load, making it more difficult to payoff.

In Canada, these are viewed as predatory lending practices and are therefore not allowed. The main concerns is that the borrowers may become too dependent on payday loans and enter a cycle of debt.

Why avoid a rollover?

A rollover may seem like the easier way out of a problem with repayment, but it is also more prone to trapping consumers in a cycle of debt where they continue to pay interest and charges far greater than the initial loan. Because of the fear of defaulting, consumers may misconstrue rollovers as something that would help them, when in fact, it works against them.

The Canadian Payday Loan Association released a Code of Best Practices which obliges members to abide by a certain standard. This covers rollovers. As a member of the CPLA, GoDay subscribes to these guidelines that ensures consumer protection and responsible lending.

More importantly, if a company is duly licensed in the specific province, it should not allow rollovers at all. This is mandated by the Payday Loan Act in specific provinces such as Ontario. Always check if the company you are working with has a license number issued by the governing province– whether they have a retail store or are based online.

GoDay is a fully licensed payday lender and a member of the Canadian Payday Loan Association and the Better Business Bureau. We offer fast and reliable services to help those who need immediate financial assistance.