When a person takes out a payday loan, the idea scenario is that he or she pays back the loan – plus fees and interest – with the next paycheck. Or, if they know at the outset that it will take two or more pay periods to pay back the loan, they will do that on a predetermined schedule. Every payday loan company offers different terms, which is why a borrower is advised to shop for the best payday lender to fit his circumstances.

But life is unpredictable. A payday loan borrower might run into additional unexpected expenses and have difficulty meeting the payback schedule.

This is where rolling over the loan might make sense. By another name this is refinancing, basically taking out a new loan to pay off the existing payday loan. Like payday loans themselves, rolling over a loan is an option, even if it places increasing costs on the borrower, including fees charged with every new payday loan.

For the borrower who is considering a rolling over option, three factors are worth serious consideration:

  • It’s best to pay down the loan in the first pay period. Ideally, a payday loan is a short term solution to a short term problem. Rolling over the loan extends the problem and makes it a little bigger every time it is done.
  • Some states do not allow rolling over a loan. Every state is different in how it regulates payday loans – by loan amount, fees, interest and whether or not rolling over is permitted. Of course, payday lenders can set their own terms within those state parameters as well. Note that offshore lenders do not necessarily adhere to state rules.
  • If you must roll over, pay down some principle. Because the expense and overall cost of a payday loan can grow with rolling over refinancing, the borrower is strongly advised to pay down a portion of the loan even if it needs to be extended into the future. Reducing the principle gradually still eliminates the loan eventually.