Executive summary (the short answer)

There is no general statutory “interest rate cap” in the Philippines because the Monetary Board suspended the Usury Law ceilings decades ago. Parties may agree on interest rates.
But high rates are not automatically lawful. Courts routinely strike down or reduce “unconscionable” interest (e.g., 3–6% per month and above, especially with compounding and heavy penalties).
Specific caps do exist for particular products and providers, notably credit cards, and small-value, short-term loans by lending/financing companies and their online lending platforms (OLPs), which the SEC capped starting 2022.
Even when the nominal rate is allowed, lenders must comply with disclosure rules (Truth in Lending), consumer protection, data privacy, and anti-harassment collection rules. Violations can void charges, reduce interest, and trigger fines and other sanctions.

The legal framework at a glance

Freedom to stipulate interest; Usury ceilings suspended
- Act No. 2655 (Usury Law) once set ceilings, but Monetary Board Circular No. 905 (1982) suspended them. In practice, no fixed statutory maximum applies to most loans.
- Parties may stipulate interest (Civil Code Art. 1306), but contracts remain subject to morals, good customs, public order, and public policy.
Judicial check: “Unconscionability” doctrine
- The Supreme Court has repeatedly nullified or reduced excessive interest as unconscionable, often where lenders imposed 3–6% per month (36–72% p.a.) plus steep penalties and compounding.
- Courts draw on Art. 1229 (equitable reduction of penalties), Art. 1159 (obligations must not be contrary to law/public policy), and general principles against oppression.
- Typical outcomes: reduction of conventional interest to a reasonable rate; deletion or reduction of penalty interest; disallowance of compounding absent clear agreement; substitution of legal interest on amounts due.
Legal interest (for forbearance and judgments)
- Bangko Sentral ng Pilipinas (BSP) Circular No. 799 (2013) set 6% per annum as the legal interest (replacing the old 12%). Courts use this as the default/ceiling when they step in to moderate or compute interest where appropriate.
Product- and provider-specific caps
- Credit cards (BSP): The Monetary Board has imposed a monthly interest ceiling on credit card interest/finance charges and caps on fees (e.g., late/processing)—periodically reviewed and adjusted.
- Small-value, short-term loans by SEC-regulated lending/financing companies and their OLPs: Since 2022, the SEC imposed rate caps for loans up to ₱10,000 with terms up to four months. In broad strokes:
  - Nominal interest: up to 6% per month;
  - Total cost cap (effective interest including fees/charges, excluding penalties): up to 15% per month;
  - Penalties for late payment: up to 5% per month on the unpaid amount.
  - These caps do not generally apply to banks (BSP-regulated) or to loans above the amount/term threshold.
Truth in Lending & effective interest disclosure
- Republic Act No. 3765 (Truth in Lending Act) and implementing rules require clear disclosure of the true cost of credit, including effective interest rate (EIR) and all fees/charges. Hidden or misleading pricing can be actionable.
Financial consumer protection
- Republic Act No. 11765 (Financial Products and Services Consumer Protection Act, 2022) gives the BSP, SEC, and Insurance Commission robust powers to investigate, direct refunds/cessation, and penalize abusive pricing and practices, including unfair contract terms, misleading advertising, and abusive collections.
Data privacy & debt collection conduct
- Data Privacy Act (RA 10173) and NPC guidance bar over-collection/over-sharing of personal data (e.g., scraping phone contacts without valid basis/consent).
- SEC Memorandum Circular on Unfair Debt Collection Practices (2019) prohibits harassment, threats, public shaming (“debt shaming”), profane language, and doxxing—frequent issues with rogue loan apps.
Registration & platform rules for online lenders
- OLPs must be tied to registered lending/financing companies and comply with SEC registration/notification regimes, app store naming/ownership transparency, and limits on the number of OLPs per entity. Unregistered OLPs face takedowns, fines, and criminal exposure under the Lending Company Regulation Act and related rules.

So… are high interest rates legal?

1) By default, yes—if freely agreed and properly disclosed.

Because usury ceilings are suspended, a high nominal rate is not automatically illegal.

2) But the higher the rate (and the harsher the add-ons), the more likely a court will cut it down.

Courts look at the totality: the rate level, compounding, add-on fees, penalties, the borrower’s bargaining power, the loan’s purpose, and whether the lender complied with disclosure rules. Rates ≥ 3% per month (36% p.a.) with compounding and heavy penalties are frequently labeled “unconscionable,” then reduced (often to 6% p.a. legal interest going forward) and penalties trimmed or voided.

3) If a cap applies (credit cards; small-value short-term SEC-covered loans), exceeding the cap is unlawful, regardless of agreement.

For these covered products, the cap is hard law. The SEC and BSP can sanction providers, order refunds/adjustments, and refer cases for prosecution.

What “counts” toward the interest limit?

Think in terms of Total Cost of Credit:

Interest/finance charge (stated rate).
Fees: processing, service, origination, verification, platform, convenience, collection, etc.
Mandatory add-ons that effectively raise the price (e.g., force-placed service fees).
Penalties (for late payment) are usually outside the “interest” cap but may have their own caps (e.g., the 5%/month late-penalty cap for SEC-covered small loans) and can be judicially reduced if oppressive.

If the effective interest rate (EIR)—computed with all non-penalty charges—exceeds the applicable cap (where a cap applies) or is misrepresented, the charges are vulnerable.

Special issues with loan apps

Granular consent for data access
- Access to contacts, photos, SMS, or location requires a clear, specific lawful basis. Blanket permissions tied to app use can be unlawful.
Collection behavior
- Contacting non-consenting third parties, workplace shaming, social media threats, and harassment are prohibited.
- Keep call logs, screenshots, and messages; these are critical evidence.
Opaque pricing
- “Low daily rate” ads that balloon via daily compounding, multiple fees, and short tenors can breach Truth in Lending and consumer protection standards.
Entity transparency
- The app must name the licensed lending/financing company behind it. If none is shown, treat as a red flag.

Practical implications

For borrowers

Check if a cap applies to your loan (credit card; or ≤ ₱10,000 and ≤ 4 months from an SEC-regulated lending/financing company/OLP). If yes, compare your EIR and fees to the caps.
Refuse blanket permissions unrelated to credit evaluation.
Keep everything: loan screens, disclosures, receipts, messages, call logs.
If charged extreme rates or harassed, you can dispute in writing and escalate to the SEC (for lending/financing companies/OLPs), BSP (for banks/e-money issuers), and the NPC (for privacy violations). Courts can reduce interest and penalties and award damages.

For lenders/OLPs

Map your product to the right regulator (BSP vs SEC) and apply the correct caps (if any).
Disclose EIR prominently; avoid drip pricing.
Document express consent to data processing; honor data minimization.
Train collectors to comply with the unfair-collection circular; audit third-party agencies.
Draft penalty and compounding clauses conservatively; unconscionable terms will be pared back in litigation.

Typical court treatment of very high rates

3% per month and above: frequently reduced as unconscionable, especially with compounding and steep penalties.
Hidden fees that bump EIR well above the nominal rate: vulnerable under Truth in Lending and FCPA.
Penalty interest (e.g., additional 3%–5% per month): often reduced or deleted under Art. 1229.
Compounding (“interest on interest”): needs clear stipulation and still may be cut if oppressive.

FAQs

Is a 20% monthly rate legal? Not per se. There’s no general cap—but a court is very likely to strike this as unconscionable. If it’s a credit card or a small-value SEC-covered loan, it likely exceeds regulatory caps and is unlawful.

The app says 1% per day “only.” Is that okay? That’s ~30% per month before fees and compounding—likely unconscionable and may breach disclosure and consumer protection rules.

I agreed to it—can I still challenge? Yes. Freedom of contract is not absolute. Courts and regulators can void or reduce abusive interest and penalties and order refunds or adjustments.

What interest will courts use if they reduce mine? Commonly 6% per annum (legal interest) from the date and on the amounts the court deems proper, plus 6% p.a. from finality of judgment until full payment.

Who regulates my lender?

Banks/e-money issuers/credit cards → BSP.
Lending/financing companies and their OLPs → SEC.
Data privacy issues → National Privacy Commission (NPC).

Compliance checklist (Philippine loan apps)

Identify regulator (BSP or SEC) and confirm applicable caps.
Provide prominent, plain-language EIR and itemized fees before loan acceptance.
Avoid daily pricing without equivalent monthly/annual disclosure.
Keep nominal interest, EIR, fees, and penalties within caps; structure penalties ≤ 5%/month where SEC-covered.
No compounding unless clearly disclosed and still reasonable.
Lawful, minimal data collection; no contact scraping without basis.
No harassment or shaming; strict controls on third-party collectors.
Maintain recordkeeping to substantiate disclosures and consents.

Bottom line

High interest is not automatically illegal in the Philippines, but unconscionable pricing will be cut down by courts and capped outright in regulated products (credit cards; small, short-term SEC-covered loans).
Apps must also pass disclosure, privacy, and collection-conduct tests. Failure on any of these fronts can render “high but agreed” interest unenforceable—with real regulatory and civil consequences.