So what is rollover? What are the advantages and disadvantages? How to borrow money to rollover? Find out with Fastloan.PH through the following article content.
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What is rollover?
Rollover is a term used to refer to a customer registering a new loan contract at the bank and using the disbursed amount to pay off the debt of the old loan contract previously borrowed.
Customer borrows 500,000 from bank B for 12 months. At the end of 12 months, customer A did not have the conditions to repay, due to fear of rollover, so the customer borrowed 500,000 PHP to pay the bank.
After paying, customer A borrows from bank B an amount of 500,000 PHP to pay back to the outside.
An important note is that customers need to make sure that the bank accepts to lend them back after paying off the old contract.
What’s the difference between rollover and maturity?
Although the results of the two processes maturity and reversal are similar, in nature and implementation, these two forms are completely different. Customers need to understand to avoid confusion.
Both forms of rollover and maturity have the same purpose of prolonging the existing loan contract at the bank and will incur a rather high fee for this activity.
The definition of maturity is as follows:
Maturity is a term commonly used in the financial sector. Maturity refers to the termination date of a loan, deposit, or insurance contract.
Bank maturity is a common activity in the banking sector with two forms: maturity of savings and maturity of loans.
Compare the difference between rollover and maturity:
|Turn your old loan into a new loan to avoid rollover||At the end of the loan term, if you are not able to repay, it will be extended for another time.|
|No conditions attached.||Comes with conditions set by the bank to ensure the customer’s ability to pay.|
How to get a bank rollover loan?
As mentioned above, the form of bank rollover is not allowed, however, in special cases, credit institutions still circumvent the law to support customers under permissible conditions and avoid arising rollovers.
Some forms of rollover are being applied such as:
- Find other sources of money to do, such as borrowing from outside to pay the bank, then borrowing from the bank to pay back to the outside.
- Rollover at the borrowing bank by asking another individual to take out a loan, then use the disbursed money to pay off the current loan.
- Rollover with a loan at another bank by making a loan agreement at another bank with a lower interest rate to repay the current loan.
Advantages when rollover loans
Why many people still choose the form of rollover and banks accept the customer’s rollover behavior even though it is not allowed, is because of the advantages of this form.
- For banks: reduce the provision for risks, increase profits, reduce rollovers and overdue debts.
- For customers: Extending the debt payment term, reducing pressure, minimizing interest rates arising from overdue, not being converted into Rollovers, and helping businesses have more costs to maintain operations business.
Rollover has many benefits for businesses and individuals who are facing financial difficulties but still have a business direction to develop and need to extend loans to overcome the difficult period.
Disadvantages of rollover loans
When the state has not allowed rollover, it also means that this has many limitations and potential risks.
New loan contract rejected by the bank
Many individuals and businesses choose to seek outside sources of money to repay the bank, then borrow again to repay the principal and interest arising outside.
But what if the loan agreement is not agreed with the peso? At this time, individuals and businesses will not have money to pay for that external loan and have to bear a rather high-interest rate.
The risk of encountering fake profiles
Many businesses use fake documents and untrue documents to take out a bank loan to rollover. This increases the risk for the bank and if discovered, the business will be held responsible before the law.
Risk of rollover
When the enterprise is unable to pay the debt, it will reverse the debt. So suppose that after the rollover, the customer continues to do business at a loss and is unable to repay the debt, what to do?
This will bring more risk to the bank with rollover coming from the business.
The form of rollover is not allowed by the state
Rollover is not allowed by the state, so if in case the rollover is discovered, the business or individual that commits the rollover will have to bear civil and even criminal liability before doing so law.
How much is the bank rollover fee?
The Rollover fee will not be stated in any paperwork as this is not allowed by the state. Rollover fee is agreed between the two borrowers and lenders, usually very high and calculated daily, can range from 0.3% – 0.5%/day/total loan amount.
Does the state lend a rollover?
If you are wondering where the State does not provide loans for Rollover, where is it regulated, this is clearly stated in Circular 39/2016/TT-NHNN.
According to this circular, rollover at banks is illegal and only two cases are allowed to rollover as follows:
- Customers can rollovers at credit institutions when using the new loan amount to pay interest arising in the process of construction and construction for which the interest cost of the loan has been calculated in the construction estimate of the work that has been licensed or approved by a competent authority following the law.
- Customers are entitled to reverse loans when using the new loan amount to pay for debts in 03 cases such as business loans; the loan term must not exceed the term of the old loan; loans that have not yet been restructured.
Why do banks still offer rollover loans?
The state does not allow rollover? But why do some banks circumvent the law to allow customers to reverse their debts, and what is the reason?
The loans that banks disburse to enterprises are mostly business loans and it will find hidden risks if business operations are not efficient.
When a business fails to pay its debt on time, Peso means that the bank lending to enterprise will have to increase the budget for risk provisioning and at the same time, the bank’s available capital will gradually decrease, causing lending was sharply reduced, leading to lower profits.
Therefore, some banks still circumvent the law allowing customers to rollovers to continue maintaining their business if they realize that the business process can be effective in the future.
Should bank rollover?
If the enterprise feels that after repaying the loan and the on-lending contract is sure to be approved by the bank, the rollover process can be carried out.
Predicting future business performance is also a factor that enterprises should consider when deciding to rollover.
What is rollover? The answer has been clearly explained by us in the article. Hope the content of the article has provided you with useful information about this concept.