The amount of competition between lenders has drastically increased since payday loans became available online. For borrowers, this means it is possible to find much lower fees and interest rates on payday loans than ever before. However, the lenders do compensate for their low rates – usually by charging much higher fees for rolling over.
What is a Rollover?
“Rolling over” on a payday loan basically means that you are extending your loan (usually until your next payday). This gives you more time to pay off the debt amount, but it also will increase the amount of the debt significantly. When you rollover on a payday loan, you will usually have to pay any fees again. You will also have the accumulated interest and fees added to the loan amount then have to pay interest on this new, higher total.
To protect borrowers from getting into large debt, many states have set laws prohibiting rollovers. Other states permit rollovers but have limits to how much more interest can be charged for rolled-over debt.
Avoiding Rollover
The best way to avoid rolling over on your payday loan is to never borrow more money than you can pay back. It isn’t always easy to calculate what you can actually afford though. That is why you must do some careful planning before you take out a payday loan.
Firstly, don’t let your current desperation for money put you into a more desperate situation in the future. Take comfort in the fact that a solution for your problem is available – stressing over the problem is just going to make it worse.
Once you have a cool head, calculate all of your expenses realistically. You should factor in the vital things like food, utilities, rent, and loans. Then, calculate your income. If your income can’t cover the expenses, then a payday loan is not going to help you – it will just make a bigger income gap in the very near future. Try to find ways to cut down on your expenses. This can mean canceling your mobile phone service for a few months, packing your lunch instead of eating out, or biking to work instead of taking the bus. Only once you’ve gotten your income-expense to a balanced ratio can you even consider taking out a payday loan for the immediate expenses.
Look at all your various options for payday loans and calculate how much it is going to cost you. Now, recalculate your income-expense ratio to see if it is still balanced. Payday loans are short term loans so you are going to have to account for this loan amount very quickly (usually within 14 to 30 days). You will not have the flexibility which normally comes with long-term loans to spread the payments out as your money becomes available.
If you are worried that your next paycheck won’t be enough to cover the loan amount and your daily expenses, see if you can’t take out a smaller loan. For example, ask your car mechanic if you can’t pay part now and the rest later instead of going for a big payday loan at once. You’d be surprised how easy it is to negotiate payments, especially since we are all going through the same financial crunch of the recession together!