What is Repeat Borrowing?
As the name suggests, repeat borrowing is when an individual either takes out the same type of loan multiple times or refinances his or her existing loan multiple times. Most of the time, repeat borrowers pay off their initial loan, but still find themselves in a monetarily unstable state, so they take out an additional loan to stay afloat.
Any financial planner will tell you that relying on loans to get by is not the wisest decision, because when you constantly have to borrow money, it's difficult to ever find your own footing. Plus, taking out a loan is not always cheap, because you could be stuck paying an exorbitant amount of interest and other miscellaneous fees.
Dangers of Short-Term/Unsecured Loans
Repeat borrowing is common in the payday loan industry and other industries specializing in short-term, often unsecured loans. Many customers roll over their first loan or borrow more within a short period of time, because they either have no alternative or need money for time-sensitive living expenses such as groceries, gas, or utility bills. The problem with repeat borrowing occurs when costs quickly spiral out of control due to a borrower missing his or her payment date and lenders applying more interest or late payment charges.
Because of the potential pitfalls of borrowing repeatedly, some lenders have been ordered to limit the number of times a customer is able to roll over their loan. Think about it - if an individual is able to take out loans continuously, borrowing money can stop being helpful and start becoming financially damaging or even predatory.
Is Repeat Borrowing for You?
It is important to note that repeat borrowing doesn't always have to be a bad thing. If you are going through a temporary period of instability, but you know you can absolutely handle another loan, borrowing additional funds can help. The most important piece of the puzzle is to know what you can afford and not getting in over your head. After all, you most likely took out a loan in order to get through a rough patch - not to cause an additional financial burden.
Overall, taking out multiple loans is an option, but before you sign on the dotted line, you need to make sure you are doing it for the right reasons and won't be caught having to pay a seemingly endless stream of bills. Like most things in life, loans are a positive choice if you know what you're getting into and you know how you will repay them. If you know you will not be able to make payments on time or afford the interest and fees associated with repeat borrowing, steer clear and avoid getting stuck on a continuous merry-go-round of debt.