Handling Bank Refusals of Partial Loan Payments (Philippine Context)

This article explains the legal landscape when a bank (or other lender) refuses to accept a borrower’s partial payment on a loan. It covers key Civil Code rules, contract mechanics, banking/consumer-protection touchpoints, practical remedies (including tender and consignation), and sample documents.

1) The Core Rule Under the Civil Code

General principle (performance must be complete). Philippine civil law requires complete performance of obligations. As a rule, a creditor cannot be compelled to receive partial payments. This stems from the nature of obligations and is stated expressly in the Civil Code (the classic articulation is that the creditor may refuse “partial prestations”).

Practical meaning. If your loan amortization due on October 30 is ₱10,000 and you offer ₱4,000, the bank may lawfully refuse that partial payment—unless one of the exceptions below applies.

2) Important Exceptions and Counterweights

Stipulation or policy allowing partial payment.
- Your loan agreement, promissory note, or bank policy may permit partial prepayments, curtailments, or excess payments to principal. If the contract allows it, the bank should honor it, subject to any listed conditions (cut-off dates, fees, prepayment penalties, minimum amounts, etc.).
Divisible obligation or installment structure.
- Some obligations are inherently divisible (e.g., separate monthly installments). You can satisfy each installment in full, but within that installment the bank can still decline less than the full amount due (unless allowed by contract).
- If multiple installments are due, a lender may condition acceptance on full settlement of the earliest due installment first.
Bank’s prior acceptance or waiver (course of dealing).
- If a bank repeatedly accepted partial payments without protest, it may be argued to have waived strict compliance for those instances. Waiver, however, is typically construed narrowly and may be withdrawn prospectively with notice.
Acceleration has been declared.
- Many loan contracts have acceleration clauses (upon default, the entire loan becomes due). Once properly invoked, the bank may refuse anything less than the accelerated total (unless it agrees to reinstatement or restructuring).
Special statutes, moratoria, regulatory relief.
- Temporary laws (e.g., pandemic-era grace periods) once required lenders to give time relief. Those have sunset. Absent a current statute or regulator-mandated relief, the default Civil Code rule controls.

3) How Partial Payments Are Applied When Accepted

Even if the bank accepts a partial amount, application of payments follows Civil Code ordering rules:

Interests and charges first. If the obligation earns interest, payment of principal is not deemed made until interest is covered. Thus, a ₱10,000 installment with ₱1,500 interest/charges will apply your ₱4,000 first to the ₱1,500, leaving only ₱2,500 to reduce principal (and leaving ₱6,000 of the installment still unpaid).
Several debts between same parties. The debtor may designate which debt/installment a payment applies to; if the debtor is silent, the creditor may choose; if both are silent, the law applies payment to the most onerous and/or oldest debts first.
Penalties and default interest. Contracts often state that penalties or default interest accrue from any unpaid balance. Even with a partial payment accepted, expect continuing charges on the remaining unpaid amount.

4) When a Bank’s Refusal May Be Problematic

While the baseline rule favors the creditor, refusal may become legally questionable if:

Contract promises partial prepayment, curtailment, or acceptance on certain terms—and the bank refuses contrary to that promise.
The bank’s refusal defeats good faith performance, e.g., you stand ready to pay the full amount due for the current installment, but branch staff insists on additional unrelated sums not yet due.
The refusal is entangled with unfair collection practices (harassment, threats, disclosure of debt to third parties), or misrepresentation about contractual rights.
There is bad-faith negotiation conduct, especially after the bank invited restructuring or offered a settlement subject to conditions you already met.

Consumer-protection angle. The Financial Products and Services Consumer Protection Act (RA 11765) and the Bangko Sentral ng Pilipinas (BSP) framework require fair dealing, transparency of terms, and proper handling of complaints. These do not force banks to accept partial payments generally, but they do require clear disclosures, fair treatment, and a functioning complaint pathway.

5) Practical Pathways for Borrowers

A. Read the Papers

Promissory Note / Loan Agreement: Look for prepayment, curtailment, partial payment, application of payments, acceleration, penalty, and reinstatement clauses.
Bank product terms: Some home and auto loans allow principal curtailment with a minimum amount and a fee.

B. Ask for a Written Policy and a Payment Computation

Request the bank’s written policy on partial payments or curtailment.
Ask for an official computation showing how any offered amount would be applied (interest, fees, principal).

C. Negotiate Targeted Options

Cure: Offer to fully pay the current installment (not just part of it).
Restructure: Longer term, reduced installment amounts, capitalized arrears.
Curtailed prepayment: Lump sum to reduce principal (and interest burden), if permitted.

D. Use the Internal Complaint Channel First

File a written complaint with the bank’s consumer protection unit (CPU).
Request a written response within a reasonable time (e.g., 15 banking days), and keep proof of filing.

E. Elevate to the BSP (for banks) or the proper regulator

If unresolved, lodge a complaint with the BSP Consumer Assistance Mechanism (for banks/quasi-banks) with copies of your contract, computations, and correspondence.

F. Legal Routes: Tender of Payment & Consignation

If you believe refusal is unjustified (e.g., the bank is obligated to accept a particular amount), Philippine law provides the tender and consignation mechanism to extinguish or partially extinguish an obligation:

Tender of payment: Make a genuine offer to pay the exact amount legally due (e.g., the full installment, or a contractually allowed curtailment). Request an official receipt.
Grounds for consignation: If the creditor unjustifiably refuses (or is absent, incapacitated, refuses to issue a receipt or return the note, or the obligation is in dispute), you may deposit (consign) the amount in court (and notify the creditor).
What amount? Generally, consignation should be for the amount legally due (including accrued interest and charges that must be paid to validly cure). Consignation of a lesser amount typically won’t extinguish the debt unless the law or the contract specifically allows that lower amount to satisfy the obligation.
Effects: Proper consignation has the same effect as payment from the date of deposit; interest stops on the consigned amount.
Risk of partial consignation: If you consign less than what is actually due under the contract and law, the court may consider it insufficient to extinguish the obligation. Use this carefully and compute the correct amount.

Tip: For installment loans, the safer litigation posture is to consign the full overdue installment(s) you intend to cure, plus documented and due interest/penalties, rather than an arbitrary partial sum.

6) Consequences of Refusal and Non-Payment

Default & penalties: Non-payment of the full amount due generally constitutes default, triggering penalties and default interest according to the contract.
Acceleration: After default, lenders often accelerate the entire loan—making partial payment even harder to negotiate.
Foreclosure:
- Real estate mortgage → Extrajudicial foreclosure under Act No. 3135 (after breach); you retain redemption rights within the statutory period post-sale (for real property).
- Chattel mortgage → Foreclosure under Act No. 1508; deficiency claims may follow.
Credit reporting & collections: Expect reporting of arrears and use of third-party collectors (who must comply with fair-collection standards).

7) Strategy Guide (Borrower’s Checklist)

Diagnose your status: Are you current, one installment behind, or accelerated?
Retrieve documents: Loan contract, amortization schedule, notices of default/acceleration, bank policies.
Compute accurately: Determine the full amount legally due to cure (installment + interest + documented fees).
Make a precise offer: Offer the full due installment or a contract-permitted curtailment amount.
Document everything: Written offers, emails, visit logs, screenshots of online attempts.
Escalate: Bank CPU → BSP complaint → legal remedies.
Consider restructuring early if cash-flow constraints are persistent.
Avoid informal “deposit-some” habits that don’t cure default; they may only reduce balances while penalties continue.

8) Lender’s Perspective (Why Banks Often Refuse)

Contractual integrity: Amortization schedules are priced on an assumption of timely full payments.
Operational controls: Systems are designed to post against exact due amounts (interest/fees first).
Moral hazard: Routine acceptance of small partials can normalize arrears and complicate regulatory asset-quality metrics.
Acceleration posture: Once accelerated, a lender may preserve rights by rejecting anything short of the full accelerated balance (unless a reinstatement agreement is signed).

9) Litigation & Case-Law Themes (At a Glance)

No compulsion for partial performance is a well-entrenched rule.
Unconscionable interest may be reduced by courts even though statutory usury ceilings are suspended; still, interest remains due at a reasonable rate fixed by the court.
Consignation is effective only if legal requisites are strictly followed (valid tender when required, deposit of the correct amount, and proper notices).
Course of dealing and equity can temper strict rights, but clear contractual text usually prevails.

10) Templates

A) Request for Acceptance of Payment / Clarification (to the Bank)

Subject: Request for Acceptance of Installment Payment and Written Computation Dear [Bank/Branch/Unit], I refer to Loan No. [________]. As of [date], I intend to pay ₱[amount], which represents [describe: full installment due on (date) / contract-permitted principal curtailment]. Please (1) confirm acceptance at your earliest convenience; (2) provide a written computation showing application to interest, fees, and principal; and (3) identify any additional documented charges legally due to cure the current default, if any. Kindly respond within [X] banking days. Thank you. Sincerely, [Name] [Contact Details]

B) Formal Tender of Payment

Subject: Formal Tender of Payment – Loan No. [________] Dear [Bank/Unit], I hereby tender payment of ₱[amount], representing the full installment due on [date], including interest and documented charges through [date], per attached computation. Please advise the time and manner of acceptance and issue the corresponding official receipt. Sincerely, [Name]

C) Notice Prior to Consignation (through counsel recommended)

Subject: Notice of Refusal & Intent to Consign – Loan No. [________] Dear [Bank/Unit], On [dates], I tendered payment of ₱[amount] legally due to cure my obligation for the [period]. Your office refused acceptance. Pursuant to the Civil Code on tender and consignation, I will deposit the amount with the proper court and serve notice accordingly. Respectfully, [Name]

11) Frequently Asked Questions

Q1: Can a bank refuse my ₱500 “good-faith” payment on a ₱10,000 due installment? Yes. Unless the contract or bank policy allows partials, the bank may lawfully refuse and treat the account as still in default.

Q2: If the bank accepts a partial, will penalties still run? Usually yes—on the unpaid portion—unless the contract says otherwise or you fully cured all amounts legally due.

Q3: Will paying interest first help me? It stops more interest from compounding on that portion, but it won’t cure default unless the entire due amount (including interest/fees) is settled.

Q4: I’m accelerated. Can I force reinstatement by paying just one installment? No. Not without the bank’s agreement (or a legal ground to invalidate acceleration). Seek a reinstatement or restructuring agreement.

Q5: When is consignation realistic? When you can show you offered the correct amount legally due and the bank unjustifiably refused. It’s technical—get counsel.

12) Bottom Line

Baseline: A bank is not obliged to accept partial payments.
Levers: Contract clauses, documented bank policies, fair-dealing standards, and proper tender + consignation procedures.
Best move: Aim to pay the full amount legally due to cure, or obtain a written restructuring/curtailment agreement.
If stonewalled: Use the complaint ladder (bank → BSP) and consider legal remedies with precise computations.

Disclaimer

This article provides general information on Philippine law and practice. It is not legal advice. Facts and contracts vary; consult a Philippine lawyer for guidance on your specific situation.