This article is for general information and educational purposes. It is not legal advice. Facts matter, and procedures can change—consult a Philippine lawyer or your local court for guidance on your specific situation.

1) The Legal Nature of a “Personal Loan” in Philippine Law

A personal loan is typically treated as a contract of loan (mutuum) under the Civil Code: the borrower receives money and must pay back the same amount (plus interest only if validly agreed).

Key takeaways:

The principal (amount borrowed) is always recoverable if proven.
Interest is recoverable only if there is a clear agreement, usually in writing. Without an interest agreement, interest may still be awarded later as damages (often computed from demand or filing), but that is different from “contractual interest.”
A loan can be:
- Written (promissory note, acknowledgment receipt, contract, IOU)
- Oral (harder to prove, but still enforceable)
- Digital/informal (chat messages, email, screenshots, bank transfers—still potentially enforceable if properly authenticated)

2) First Principles: What You Must Prove to Collect

Whether through a demand letter or small claims, you want a clean story supported by documents:

A. Existence of the loan

Promissory note / loan agreement / IOU / acknowledgment receipt
Chat or email where the borrower admits borrowing
Witnesses (if needed)

B. Release of the money

Bank transfer slips, e-wallet transaction history, remittance receipts
Withdrawals tied to handover, signed receipt
Messages confirming receipt (“nakuha ko na”)

C. Due date / maturity

Written due date (best)
If no due date: demand makes the obligation “due” (generally, an obligation without a term becomes demandable upon demand)

D. Non-payment

Collection messages, borrower’s admissions, failed payment promises
Ledger of partial payments (if any)

Practical tip: Courts like paper trails and clear computations. Your goal is to make the judge’s job easy.

3) Demand Letters: Why They Matter

A demand letter is your formal, documented notice that the borrower must pay. In the Philippines, demand letters matter because they can:

Trigger default (delay / mora) in many situations
Support a claim for interest as damages from the time of demand
Help establish good faith and reasonableness
Interrupt prescription through extrajudicial demand (important when years have passed)
Serve as a key attachment for small claims and regular civil cases

A demand letter is not always legally required, but it is usually a smart step.

4) What to Put in a Strong Demand Letter

A well-written demand letter is short, factual, and documentary.

Core contents

Date
Borrower’s full name and last known address
Your full name and address
Background: when and how much was borrowed; how released (cash/bank/e-wallet)
Due date/term (or state that it is due upon demand)
Total amount due, with a clear computation:
- Principal
- Less payments made (if any)
- Contractual interest (if agreed and valid)
- Penalties (if agreed and not unconscionable)
Demand: pay within a specific period (commonly 5–10 business days, or 10–15 calendar days depending on context)
Payment instructions (bank account/e-wallet) and request proof of payment
Consequences: you will file a case (small claims or civil action) and seek costs as allowed
A final line inviting settlement (optional but often helpful)

Tone

Firm, non-threatening, and professional.
Avoid insults, shaming, or “criminal threats” unless you truly have a legal basis (e.g., bounced checks). Overthreatening can backfire.

5) How to Serve a Demand Letter (So You Can Prove It)

You want proof that the borrower received it (or refused it).

Good service methods:

Personal delivery with the borrower’s signature on your receiving copy
Courier with tracking and proof of delivery
Registered mail with registry receipts and return card (if available)
Email (best if the borrower previously used that email with you) + keep headers/screenshots
Messaging apps (Viber/WhatsApp/Messenger): useful, but better when combined with other service; preserve screenshots and metadata

Preserve evidence

Keep a copy of the letter you sent
Keep delivery receipts, tracking screenshots, and any replies

6) Interest, Penalties, and Attorney’s Fees: What You Can Realistically Claim

A. Contractual interest and penalties

If written and clearly agreed, courts may enforce them.
If excessive or “unconscionable,” courts can reduce them.

B. Interest as damages (when no interest is agreed)

Even without an interest clause, courts may award legal interest as damages once the debtor is in default (often from demand or filing depending on the situation and the court’s appreciation).

C. Attorney’s fees

In the Philippines, attorney’s fees are not automatic; they must be justified by law or contract and by circumstances.
In small claims, parties generally appear without lawyers, so “attorney’s fees” are commonly not the focus—expect the court to prioritize principal, allowable interest, and costs.

7) Prescription: Don’t Sleep on Deadlines

If you wait too long, the borrower can raise prescription (time-bar).

Common Civil Code benchmarks (general guide):

Written contract: longer prescriptive period
Oral contract: shorter prescriptive period

Also important:

Prescription may be interrupted by extrajudicial demand, filing in court, or written acknowledgment of the debt.

If the loan is old, get advice quickly—your strategy may depend on whether prescription is close.

8) Barangay Conciliation (Katarungang Pambarangay): When It’s Required

Before filing many civil disputes, parties may need to go through barangay conciliation (Lupon) if they live in the same city/municipality and no exemption applies.

Typical outputs:

Amicable settlement (best outcome if collectible)
Or a Certificate to File Action if settlement fails (often needed for court filing)

Because applicability depends on residence and dispute type, check:

Your addresses and the borrower’s address
Whether an exemption applies (e.g., different cities/municipalities, urgent relief, etc.)

Even when not strictly required, barangay settlement can be useful—if the borrower has capacity and good faith.

9) Small Claims in the Philippines: The Main Court Remedy for Unpaid Personal Loans

Small claims is designed for simple money claims: faster, cheaper, and typically no lawyers in hearings.

A. What kinds of loan cases fit small claims?

Usually:

Unpaid personal loans
Promissory notes / IOUs
Simple collections with clear amounts due
Claims for a sum of money that do not require complex litigation

B. Monetary limit

The Supreme Court has increased the ceiling over time. As a general practical guide, small claims commonly covers claims up to around ₱1,000,000, but you should verify the current limit with the clerk of court of the filing court (rules can be amended).

C. Where to file (jurisdiction and venue)

Small claims cases are filed in first-level courts (e.g., MTC/MTCC/MeTC/MCTC). Venue is generally based on:

Where you reside, or
Where the defendant resides, subject to the specific venue rules and circumstances.

In practice, parties often file where the defendant is located for easier service and execution.

D. What you file (typical requirements)

You usually prepare:

Statement of Claim (court-provided form)
Verification and certification (as required by the form/rules)
Copies of:
- Promissory note / IOU / acknowledgment receipt
- Proof of release of funds (bank/e-wallet receipts)
- Demand letter and proof of service
- Ledger of payments and computation
- Any relevant messages/admissions
- Barangay Certificate to File Action (if required)
ID copies and other court checklist items

E. Fees

Filing fees are typically lower than regular civil cases and vary by court and claim amount. The clerk of court will compute. Keep receipts.

F. What happens after filing

Common flow:

Court reviews documents for completeness
Summons is issued to the defendant
Defendant files a Response within the period set by the rules
Hearing is set promptly; the court typically pushes settlement early
Judge decides—often quickly, sometimes the same day or shortly after hearing depending on the court’s docket and rules

G. Evidence in small claims

Small claims is document-driven. Strong attachments often win cases:

Signed promissory note or written acknowledgment
Clear proof of fund transfer
Demand letter + proof of receipt
Borrower admissions in writing or messages (authenticated as needed)

H. No appeal (usually)

Small claims decisions are generally intended to be final and speedy. While ordinary appeal is typically not available, extraordinary remedies (like petitions questioning jurisdiction or grave abuse) may exist in limited circumstances—but those are exceptional and technical.

10) Winning Is Not the Same as Collecting: Execution and Enforcement

Even if you win, you still need to collect. After judgment becomes enforceable, you can seek a Writ of Execution.

Common enforcement methods:

Garnishment of bank accounts (if identifiable and reachable)
Levy on personal or real property (if the debtor owns assets)
Sheriff enforcement (subject to rules and fees)

Reality check:

If the borrower is “judgment-proof” (no assets, no stable income, everything in someone else’s name), collection can be difficult.
Before filing, it’s smart to assess collectability:
- Do they have a job? a business? vehicles? real property? known bank accounts?
- Are there prior cases/judgments?

11) Special Situations

A. Partial payments and restructuring

If the borrower pays partially, document it:

Issue receipts
Update your ledger
Confirm remaining balance in writing
Consider having the borrower sign an Acknowledgment of Debt with Undertaking (clear payment schedule)

B. Checks issued for the loan

If the borrower gave a check that bounced:

This can trigger additional legal considerations (civil + possible criminal exposure depending on facts).
Handle carefully: the presence of a bounced check changes strategy, timelines, and documentary needs.

C. Online shaming and harassment: avoid it

Common collection mistakes that can backfire:

Posting the debtor’s name/photos online
Threats, repeated harassment, contacting employer in a defamatory way
Sharing personal data with third parties

Stay professional and document-based. You can be firm without exposing yourself to counterclaims.

12) A Practical Step-by-Step Roadmap

Organize evidence
- Contract/IOU, proof of transfer, messages, payment history
Compute accurately
- Principal minus payments
- Add interest/penalties only if supportable
- Prepare a clean one-page computation sheet
Send a demand letter
- With a clear deadline
- Serve with proof
Consider barangay conciliation
- If required (same city/municipality, no exemption)
File small claims
- If within the small claims ceiling and the case is straightforward
Prepare for hearing
- Bring originals + copies
- Stick to your timeline and documents
If you win, move to execution
- Identify assets/accounts where possible

13) Demand Letter Template (Practical Sample)

DEMAND LETTER Date: ___________

To: [Borrower Full Name] Address: [Borrower Address]

Re: Demand for Payment of Loan

Dear [Name],

On [date/s], you borrowed from me the total amount of ₱[amount]. The amount was released to you via [cash/bank transfer/e-wallet] on [date] (proof available). You undertook to pay on or before [due date] / or the obligation is demandable upon demand.

Despite repeated reminders, you have failed to pay. As of [date], your outstanding balance is:

Principal: ₱__________
Less payments made: ₱__________
Outstanding balance: ₱__________
(If applicable) Interest/penalty per our agreement: ₱__________
Total amount due: ₱__________

I hereby demand that you pay the total amount of ₱[total] within [10] days from receipt of this letter. Payment may be made through [bank/e-wallet details] and you may send proof of payment to [contact details].

If you fail to pay within the stated period, I will take the appropriate legal action, including filing a small claims case or other collection suit, to protect my rights, and I will seek recovery of allowable costs and other relief.

Sincerely, [Your Full Name] Address: ___________ Contact No.: ___________

14) Small Claims Filing Checklist (Quick Reference)

Bring/prepare:

Statement of Claim form (properly filled out)
IDs
Promissory note/IOU/contract (or best available proof)
Proof of release (bank/e-wallet receipts)
Demand letter + proof of service
Payment ledger/computation sheet
Barangay Certificate to File Action (if required)
Copies for court and defendant (ask the clerk how many sets)

Bottom Line

For unpaid personal loans in the Philippines, the strongest approach is usually:

(1) Document → (2) Demand letter with proof → (3) Barangay conciliation if required → (4) Small claims (if eligible) → (5) Execution targeting real assets.

If you want, paste your loan facts (amount, how it was sent, whether there’s a promissory note, due date, and what proof you have), and I’ll turn them into:

a tailored demand letter, and
a small-claims-ready timeline + document checklist (without adding anything you can’t support).