How it works
The payday rollover trap is the structural outcome of lump-sum payday design: a borrower who cannot produce principal plus fee on the due date pays another period's fee to extend the deadline — and the principal never moves. Rollovers are not a misuse of the product; they are the statistically normal use of it, which is why regulators describe the business model in terms of repeat borrowing. The arithmetic is brutal in its simplicity: a $500 loan carrying a $75 fortnightly fee costs $150 a month to stand still. Six rollovers later, the borrower has paid $525 in fees — more than the original loan — and owes the full $500 still. Annualized, that fee equals about 391% APR, a number the biweekly quote was engineered to hide. This calculator replays your actual cycle count as a ledger: fee charged, fees accumulated, and the unchanged principal staring back row after row. The ledger's flat final column is the entire argument. Exit paths exist and are cheaper than the next rollover: lender extended-payment plans, credit-union payday-alternative loans priced near 28% APR, nonprofit credit counseling, even a card advance at 29%. Every one of them reduces the principal; only another rollover guarantees the opposite.
Formula
Total fees = fee × (rollovers + 1) | Effective APR = (fee ÷ principal) × (365 ÷ days per period)
Tips
- Before rolling over, ask the lender for an extended payment plan — many must offer one.
- Credit-union PALs cap pricing near 28% APR — orders of magnitude below rollover math.
- Track fees paid versus principal: the moment fees exceed the loan, stop feeding the cycle.
- One-time use with clean repayment is the only version of this product that stays cheap.
- Nonprofit credit counseling restructures the debt for free or near-free — call before rolling again.
Frequently asked questions
- What happens when you roll over a payday loan?
- You pay another period's fee — commonly $75 per $500 — and the due date moves out; the principal is untouched. Seven cycles on those terms means $525 paid in fees against a loan that is still $500, which the ledger above shows row by row.
- What is the real APR of a payday loan with rollovers?
- A $75 fortnightly fee on $500 annualizes to about 391% whether or not you roll — rollovers just realize the rate. Each extension pays the rate again without reducing the balance, so effective cost compounds with every cycle you keep the loan alive.
- How do people get out of the payday loan cycle?
- Through structures that reduce principal: lender extended-payment plans, credit-union payday-alternative loans near 28% APR, nonprofit debt-management plans, or even a 29% card advance. All beat the next rollover; none of them require paying another full fee just to stand still for two more weeks.
- Do payday lenders report to credit bureaus?
- Generally no — neither the borrowing nor the defaulting builds or burns traditional credit in most cases. That invisibility cuts both ways: the loan never helps your score when repaid on schedule, while collection outcomes after default can still reach reports later through third-party debt collectors, unlike mainstream lenders who report both ways from month one onward.
- Why can't I just repay a payday loan on time?
- Because the design assumes otherwise: repaying $575 in one lump two weeks after borrowing $500 defeats most budgets that needed the $500 urgently in the first place. Regulators cite repeat-borrowing majorities precisely because the lump-sum structure makes clean single-cycle repayment statistically unusual, which is why rollovers are normal usage rather than user failure.