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Rollover loans are loans that are renewed at a defined point, with different types including payday loans, IRA or retirement savings loans, mortgages, and auto loans. Payday rollover loans can be expensive due to additional fees, while IRA rollover loans occur when someone has already borrowed from their pension plan and starts working at a different job. Rollover mortgages are renegotiated at the prevailing rate, and auto rollover loans allow people to take on debt and roll it over to a new loan.
A rollover loan is essentially a loan that is renewed at a defined point, as stipulated in a loan agreement. There are several types of rollovers, each different from the others, except for this main idea of rollover. The most common types include payday loans, rollover IRA or other retirement savings loans, and rollover mortgages. Another type of loan that can earn this title is an auto loan, if someone is buying a new car and looking for financing to pay off their trade-in at the same time.
The payday rollover loan starts out as a short-term loan that rolls over every few weeks, coinciding with the arrival of the paycheck, if the full amount of the loan is not paid. These transfers are incredibly expensive and can quickly add hundreds of additional dollars to the cost of repaying a loan. What happens is that the lender charges a large new fee with each passing two weeks and with each loan renewal, making it much more expensive to repay the loan.
What is basically happening is that the loan is automatically renegotiated every two weeks, and there is a fee to apply for a new loan, as the money is considered paid and then re-borrowed each time. Given these additional fees, this form of rollover loan is not considered a good investment. People who intend to use these loans should ask about the fees for each rollover and plan to pay the money back quickly.
An IRA rollover loan or pension plan loan is another example of a rollover loan. Typically, this loan occurs if someone has already borrowed from your pension plan and then starts working at a different job. In these cases, the loan is renewed and new repayment terms apply at the new job.
Something different from this is a rollover loan based on a mortgage. The initial terms of the mortgage expire at a set point and the loan is renegotiated at the prevailing rate. This may or may not be advantageous, depending on whether interest rates are higher or lower than they were when the initial loan was taken out.
Another type of rollover loan is when people take on debt and roll it over to a new loan, such as car loans. Many people owe more money on their cars than they take back if they sell a car, especially to a dealer. Instead of waiting to pay more on the loan, they may choose to take the rest of the money owed and add it to the money they will borrow for a new car.
This increases the payment and purchase price, but effectively relieves the person of current loan obligations. From an economic standpoint, it’s certainly better to wait until the loan’s down payment equals the current value of the car, because transferring the money to a new loan means paying a lot more interest on it. Some people who have circumstances where they cannot afford to wait may find an auto rollover loan helpful.
Smart Asset.
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