Due to the financial difficulties facing many borrowers, the selling of debt is becoming an increasingly necessary practice. This is simply where one lender passes on your outstanding debt to a secondary company. It can happen as a result of restructuring within one company, where they simply don’t have the funds to support the debt, or because a borrower has defaulted.

In terms of payday loans, the only time that your debt is likely to be sold is if you fail to repay within the required time. This will cause you to default; with the end result being a substantial fine and interest being added to your existing. For many borrowers, this can create substantial problems.

To demonstrate how debt can mount up and become unmanageable, here’s a quick example:

Let’s say you borrow £400. The payday loan company charges a standard rate of interest that equates to around £25 for every £100 you secure. This would mean that on the date when the repayment is scheduled, you will owe £500.

Sadly you don’t have the funds available on the agreed date and end up defaulting. This will usually result in a standard charge, for the purposes of this example let’s say that this is £25. Therefore you now owe a total of £525. Finally, an extra month’s interest will also be applied to this figure. As such, you need to add a further £130. Suddenly the £400 you originally borrowed has been transformed into £655. That’s the equivalent of 64% bolted on.

If this loan was then rolled over automatically, you would be given an extra month to pay off the £655 now owed. Most payday loan companies would often discuss this with you first, just to ensure that you’re in a position to repay and that you are aware of the charges being applied.

However, should you fail to repay the debt on the revised date once again, further charges would be applied. Using the same equation as above, this would see the total swell to an imposing £850 – more than double the original amount. This is the point at which the overall debt may become unmanageable.

So what do you do? Well, if you are aware that your debt has grown out of control and are no longer able to repay it – certainly not in one go at least – then you need to contact the lender. Some will offer a kind of repayment scheme. This will effectively freeze charges and allow you to simply pay off the current outstanding amount – £850.

In cases where the customer is unresponsive, or the debt has grown too large, some payday loan companies will simply choose to sell this to a collection company or debt enforcement agency. It will then be down to this second party to obtain the funds.

This is extremely rare though and should only occur when a borrower applies for more than they can reasonably afford to repay. It can be avoided easily enough too. For instance, if you are aware that there may be an issue make sure you contact the payday loan company instantly. It will happen from time to time, and whilst you might not escape some form of charge, you can at least avoid getting into the kind of financial predicament that could become extremely serious very quickly.

Above all, anyone who is looking to borrow money needs to be careful. Whether it’s a long-term or short-term loan, the same principle applies. If you can’t afford to repay it, don’t borrow the money in the first instance. The consequences can be financially damaging if you do fail to do so, as such it’s important that you live within your means. Otherwise your debt could be sold and you might find collectors chasing you for outstanding funds.

Vincent Rogers is a finance writer who writes for a number of finance businesses. For reliable payday loans, he recommends http://Paydaypower.co.uk

Vincent Rogers is a finance writer who writes for a number of finance businesses. For reliable payday loans, he recommends http://Paydaypower.co.uk

Author Bio: Vincent Rogers is a finance writer who writes for a number of finance businesses. For reliable payday loans, he recommends http://Paydaypower.co.uk

Category: Finances
Keywords: payday loans, same day loans, loans, UK, finacne