What normally happens is that the original amount and interest increases. The interest rate is added for every single month that the loan is not paid as it rolls over to the next month. This can last for as long as one year before the lender attempts to get their bargain from the contract you have signed. Your wages will be garnished. Worse, you may be taken to court. If the latter decides against your favor, some of your assets may be sequestered to pay off the loan in case you are unemployed or have loss your source of income.
Besides, In the UK, the Pay Day Loans issue is a serious problem. Not only are they charging lunatic rates of interest, sometimes as high as 2250% APR; their recovery “techniques” are very often unpleasant.
I always say to clients, always tell your creditors (people you owe money to) the truth and try to negotiate a repayment schedule, to be reviewed in 6 months. Never go to these Pay-day loan operations. Many people do not understand the concept of compound interest and actually what APR (Annualised Percentage Rate) means. In the scenario of 2250%, that means fro every US$1 you borrow, you will be charged US$2251 over the course of the 12 months. That is the amount of money that you will have to pay to clear the loan, and that assumes that the interest is accrued and applied monthly. Most of these loan sharks compound the interest on a daily basis, hence the massive APR.
Most of these Pay-day loans are worse than the loan sharks of the Victorian era in England. Their methods of collection go far from just the “little reminder call” or follow up letter, particularly if you fail to pay to time. Most of the time you do not have the protection if your Country’s laws as invaribly the loan company is registered “off-shore”, that is to say that the loan money and therefore contract is underwritten often in another Country altogether. That makes life very awkward for you.
They will have all your details as you supplied to them when you filed the application for the loan. Of course, assuming you can service 2250% interest on a simple loan (which I find unlikely, unless you are a Trader on the Stock Exchange), then you will have no problems, BUT it is likely that you are not going to be able to keep up the payment rate required, and again the interest accrual is on an exponential level.
We come now to default. You will probably initially get either text messages or phone calls at all times and day or night. These will be followed up by very aggressive letters. Very quickly, even though you may have made some sort of payment the chances are the debt is increasing as a result of the compound interest, the balance is actually going to increase faster than you can repay it.
The sort of firms who offer these “Pay Day Loans”, are far from pleasant when it comes to enforcement. Not only are they orally obnoxious and aggressive, but there have been a number of reported incidents in the UK, where these “debt collectors” use not just oral threats over the telephone or text, but as likely come to your house, in some cases your employer.
In the case of your house, they may try to “confiscate” your car or other valuable items, or apply for an enforcement order to force you to sell the house. However, given that you are likely to be dealing with the bottom end of the professional scale here, do not expect legal action, but a brick through your window.
There have been a number of incidents in the UK where the debtor is being telephone, or their door bell being rung literally every other hour, or turning up at their place of work. In some cases actually using sheer force, and by that I mean violence to the point of life threatening. Indeed there have been instances where the debtor has actually committed suicide because the bullying and pressure that these loonies use is so excessive.
In short: do not go anywhere near these pay day loan ilk since they are not comply with the law, and they would happily kill you, at best harass you to suicide.
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