Lending 101 Continued: What's a Rollover & a Refi

Published: Wed, 05/18/22

Here's two more basic 101 "lending to the masses" definitions the Trihouse Consulting Team is asked about daily!

What is a rollover?

A rollover occurs when a borrower cannot repay a loan at the end of the stated term. Rather than pay off the full amount – principal plus finance charge – the borrower pays the finance charge (plus, in some cases, a percentage of the principal or an additional ‘extension fee’). The loan is extended until the next payday when the principal plus another finance charge will again become due. The second loan is typically classified as a separate and distinct loan in lenders’ financial statements.

What is refinancing?

Refinancing occurs when the borrower repays the full amount – principal plus interest – on the due date. A new loan is then written immediately. This loan carries the same interest rate as the first loan. Again, the second loan is classified as a separate and distinct transaction by the lender. In economic terms rollovers and refinancing are practically identical. In both cases the borrower faces an additional fee. However, in both cases little to no additional credit has been extended by the lender.

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