When acquiring a loan or learning about loans in general, you are likely to hear about ‘rollovers’. This term refers to the practice of “rolling over” a loan, which you will frequently hear about when researching the ins and outs of money lending, be it crypto or fiat currency.

 

What does it mean?

 

“Rolling over” a loan pertains to when the lender is paid by the borrower with an additional fee to extend the loan’s original due date. This fee will increase the overall borrowing cost and can lead to certain borrowers becoming trapped in a cycle of debt. This is what is commonly referred to as a ‘debt trap’. Loan rollover is often seen in several short-term loans, such as payday and title loans. However, those particular practices are banned in various places (ex. 21 states forbid them).

 

The specific details of loan rollover vary depending on the location, as well as who the lender is. Be that as it may, there are two significant elements that they all have in common:

  • The customer will pay a fee.
  • The lender will provide an extension on the loan’s due date.

 

Rollovers for crypto lending

 

To understand rollovers in relation to crypto loans, one needs to consider loan maturity. At the end of a loan’s term, there are a few options available that will allow you to pay off that loan.

  • It is possible for a loan to be rolled over to a new loan. This new loan will pay off the current loan, which in turn means that the collateral will be transferred to the new loan. The new loan’s terms will ultimately depend on the conditions of the market and may have gone through alterations since the initial loan.
  • For those who use USD, a payment with this currency is admissible for the outstanding principal amount of the loan. This also includes the final interest payment.
  • A blend of a USD payment for a portion of the loan amount’s outstanding principal balance with whatever the remainder is rolled over to a new loan.
  • Should the price increase, a rollover with additional funding will likely be made available.

 

Something to take into account when it comes to a rollover is the loan-to-value (LTV). Specifically, the fact that it may need to be at 40% upon the new loan conception. If the price has declined, then there may be a requirement for extra collateral in order to acquire the new loan.