Payday loans are short term loans. They usually have terms (or durations) of only 2 or 3 weeks. Borrowers are required to repay the whole loan amount (plus interest) at the due date.
But what if the borrower doesn't have the full loan amount on the due date? This happens all the time, and lenders have provided a way to extend loans. These extensions renewals are also referred to as rollovers or renewals. A rollover or renewal is basically a new loan, at the same rate, until the borrower's next pay period.
Not surprisingly, it can be easy for borrowers to get stuck on a never ending cycle of renewals, racking up huge interest rates for a loan. As a result, many States have enacted laws restricting the number of renewals that can be issued to a borrower.
If you take out a payday loan, keep in mind that these loans should only be used for true short term cash needs. If you do not think you can repay the whole loan amount on your next paydate, don't take out the loan — look in to other options of getting the cash you need. Otherwise, you will find yourself stuck in an endless cycle of renewals.
You may have heard the term "payday loan renewal" or "payday loan rollover". If you have taken out a payday loan in the past, you have probably even "renewed" or "rolled over" your loan. Let's take a quick look at what a renewal or rollover is. And why you need to be careful about using them.