A roll-over loan is a form of loan in which the term is divided into different tranches. The interest is not fixed for the entire, usually multi-year term, but only for the duration of each tranche. The marketplace for the roll-over loan is the euro money market. This also makes it clear that this loan option is a loan from institutional investors in the capital market.
Interest on a rollover loan is based on specific interest rates, such as London Interbank Offered Rate (LIBOR). The risk that the interest rate will rise at the end of an interest rate period clearly lies with the debtor of the loan. After expiry of an interest period, the interest rate is adjusted in accordance with the underlying interest rate (roll-over). However, after expiry of an interest period, the borrower has the option of repaying the loan in whole or in part. Since the interest is adjusted again after the end of the respective period, which is between one and twelve months, there is the possibility of the lender only having to raise money himself at short notice at the current refinancing rates. An interim increase in the refinancing costs is passed on to the borrower.
Different variants of the roll-over loan
There are two exercise types available for this special loan variant. On the one hand, the loan amount can be paid out in one sum. The repayment then takes place within the framework of the contractually agreed agreement. As a second option, a credit line is available within which the borrower can dispose of the borrowed funds.