What is a roll-over loan?
A roll-over loan is a practice which gives the
borrower the option to renew a loan on the date
that it becomes due, without actually repaying the
loan, i.e. a new loan agreement is begun, while the
previous one remains active and unpaid.
This practice results in the original capital amount,
or an increased capital amount, being rolled over
from one month to the next, and at the same time
earning interest at the annual rate instead of the
defaulting loan earning 5 percent maximum interest
per month as prescribed by NAMFISA guidelines.
Thus a new agreement is entered into for a loan that
is effectively in default.
What is NAMFISA’s take on
roll-over loans?
NAMFISA allows limited numbers of loan rollovers,
howerver:
NAMFISA discourages the perpetual roll-over of
loans;
• Loan roll-overs are limited to a maximum of
four months;
• After the fourth roll-over, the loan agreement
should be ended and the lender and borrower
should negotiate the repayment terms of
the balance outstanding at that date with no
further interest being charged.
