Sara Routhier, Managing Editor and Outreach Director, has professional experience as an educator, SEO specialist, and content marketer. She has over five years of experience in the insurance industry. As a researcher, data nerd, writer, and editor she strives to curate educational, enlightening articles that provide you with the must-know facts and best-kept secrets within the overwhelming world o...

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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He also has an MBA from the University of South Florida. ...

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Reviewed by Joel Ohman
Founder, CFP®

UPDATED: Jul 12, 2012

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For those who have taken out a payday loan only to find themselves without money come the end of their two-week term, a common tactic is to repay the original fee and extend their financing by two more weeks.

That’s a rollover: extending an instant loan by either paying a fee for another two weeks, or by taking out a brand new instant loan to cover the cost of the previous one.

Rolling over instant loans occurs in much the same manner as paying off a credit card with another credit card. Borrowers simply satisfy the balance of a previous agreement by signing a new agreement. It’s because of this reason that instant loans have such a bad reputation amongst consumer advocates.

Instant loans by their very nature appeal to those who are enduring financial hardship. If you weren’t in financial hardship, you wouldn’t need a check advance on your next paycheck. Due to the steep fees that come with this type of financing, consumer advocates argue that instant loans work against the borrower by trapping them in perpetual cycles of debt.

To illustrate this potential cycle of debt, imagine a borrower who takes out a $200 paycheck advance for a $30 fee. After two weeks, if this borrower is not in a better financial position, he or she may have to roll their financing over. They can do this by paying another $30 fee and extending their balance due date by 2 more weeks.

Now this borrower has effectively borrowed $200 for $60 interest. If he or she rolls this loan over again, they would have borrowed the $200 for six weeks total, but at a cost of $90. That’s nearly 50 percent interest.

As one can see, rolling over an instant loan can add up very quickly. That’s why it’s best to only resort to payday loans if one absolutely knows that they will be in a financial position to repay their loan at the end of the very first term.

When you apply for an instant loan, or when you rollover an existing one, try to find the cheapest rate. Most lenders offer paycheck advances at a rate of $15 per $100 borrowed.