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: Nov 28, 2011

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If a recipient of a payday loan finds themselves unable to pay back the loan’s balance after the agreed upon two week term, they can “rollover” their loan.


Rolling over a payday loan refers to taking out another payday loan for another two week term. However, borrowers should be especially careful when considering rolling over a payday loan. Rolling loans over several times over is what earns payday loans their bad reputation.


When a borrower rolls a payday loan over, the amount of interest agreed upon in the original payday loan will be charged at the end of the new two week period.


For instance, on a $100 loan with a $15 interest rate, the borrower would owe $115 after two weeks. If the borrower is unable to pay that loan off in two weeks, the interest would be charged again, resulting in a total of $130 owed.


Even if the borrower was able to pay $110 of the total $115 at the end of the first two week term, the $15 interest rate would still be applied to whatever balance is remaining — no matter how small — if the loan is rolled over.


Another important factor to keep in mind is payday lenders require a post-dated check or permission to access borrowers’ bank accounts. If a borrower does not roll over their loan at the end of their loan’s period, the lender will cash the check. This will result in an overdraft fee for the borrower if the borrower does not have adequate funds.


After being slapped with an overdraft fee, the borrower will still be responsible for paying off the loan and interest, and will likely be forced to roll over the loan as a result.


Avoid this payday loan trap by responsibly borrowing and taking loans out only when you know funds will be available to pay off these loans in a reasonable amount of time.