Here are some thoughts, imagine I ask for a loan of 1 bitcoin right now, that's around 916 euros, and I'm going to pay in the next 12 months, 5% interest, if bitcoin's price continues to increase and it can increase to 3000 euros by the end of next year I will spend a lot of money to pay that 1 bitcoin.

What will happen, probably I will default, because that kind of interest is a ripoff, many people will do so, and I'm assuming honesty here not simply trying to scam people.

What can you do when people don't honor their payments?

This is a serious problem with loans denominated in bitcoin, the price is not stable enough to allow for this to happen.