Loan rollover is a financial process in which an existing loan is extended by rolling over its outstanding balance into a new loan with a new maturity date. This process is typically used when a borrower is unable to repay the outstanding balance of a loan when it is due.
In a loan rollover, the borrower agrees to pay the interest on the outstanding balance of the existing loan for an additional term, usually a month or a quarter. At the end of this term, the principal balance of the existing loan is rolled over into a new loan, along with any outstanding interest and fees. The borrower is then given a new term to repay the balance of the new loan.
The process of loan rollover is commonly used in short-term loans, such as payday loans or cash advances, where borrowers may not be able to pay off the full balance of the loan on the due date. However, loan rollover can also be used in long-term loans, such as mortgages or business loans.
While loan rollover can provide borrowers with additional time to repay their outstanding balance, it also comes with certain risks. One risk is that the borrower may end up paying more in interest and fees over time due to the extended term of the loan. Additionally, borrowers who rely on loan rollovers to manage their debt may find themselves in a cycle of debt that can be difficult to break.
Overall, loan rollover can be a helpful option for borrowers who need additional time to repay a loan, but it should be used with caution and careful consideration of the associated risks and costs. It is important for borrowers to fully understand the terms and conditions of their loan agreements, including any provisions related to loan rollover, before signing on the dotted line.
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