Loan-Interest-Rate Ceilings in the Philippines: A Comprehensive Legal Guide (June 2025)

I. Why the Question Matters

Access to credit invigorates commerce, but excessive interest threatens both social justice and macro-financial stability. Philippine law therefore walks a tightrope: it has abolished rigid statutory ceilings in most markets since 1982, yet still polices “unconscionable” rates through judicial review and sector-specific regulation. This article traces that evolution, explains the current framework, and highlights live compliance issues.

II. Historical Back-Drop

Milestone	Key Instrument	Core Effect
Usury Law of 1916 (Act No. 2655)	First codified ceilings; revised many times (e.g., 12% p.a. for secured loans by 1940s).
Central Bank Act of 1948 (RA 265)	Transferred power to set ceilings from Congress to the Monetary Board (MB).
Circular 416 (1974)	MB fixed the “legal interest” and all ceilings at 12 % per annum.
Central Bank Circular 905 (Dec 22 1982)	Suspended the Usury Law ceilings “until otherwise ordered,” effectively deregulating rates for all loans and forbearances of money.
New Central Bank Act (RA 7653, 1993)	Re-created the BSP; kept MB’s delegated power to restore ceilings. It has never done so, preferring market-based pricing.

III. The Present General Rule

There is presently no statutory or regulatory maximum interest rate applicable to ordinary commercial or consumer loans, except where a sector-specific circular sets one.

Parties are free to stipulate any rate provided:

Written agreement (Civil Code art. 1956);
Rate disclosed in the manner required by the Truth in Lending Act (RA 3765, as amended by RA 9474 for micro-finance);
No fraud, force or undue influence taints consent (arts. 1390–1391).

IV. The “Legal Rate” vs. “Contractual Rate”

Legal rate is the default or the measure for damages when no rate is agreed.
BSP Circular 799 (July 1 2013) reset the legal rate from 12 % to 6 % per annum.
Supreme Court landmark Nacar v. Gallery Frames (G.R. 189871, Aug 13 2013) adopted 6 % for judgments and converted interests.

V. Judicial Control of “Unconscionable” Rates

Even without a statutory ceiling, courts may reduce a contractual rate ex aequo et bono under:

Civil Code arts. 1229 & 2227 (when “iniquitous or unconscionable”);
Article 1159/1306 (limits of autonomy).

Notable cases (rate deemed void or re-priced to 12 %/6 % p.a.):

Case	Contract Rate	Holding
Medel v. CA (G.R. 131622, 1999)	66 % p.a. plus 5 % penalty per month	Reduced to 12 %.
Spouses Castro v. Tan (G.R. 168940, 2008)	7 % per month	Cut to 12 % p.a.
Spouses Abellera v. Spouses Abellera (G.R. 164349, 2010)	5 % per month	Reduced.
Toring v. Ganzon (G.R. 190706, Jan 30 2017)	7 % per month	Reduced to 12 %.

Practice Tip: Courts rarely bless rates > 36 % p.a. absent special commercial context (venture financing, factoring, etc.). Lenders bear the burden of proving fairness.

VI. Sector-Specific Ceilings Still in Force

Sector	Instrument & Effect	Status (June 2025)
Pawnshops	BSP Circular 938 (2017) caps interest at 3 % per month and service charge at 1 % (≤ ₱5) of principal.	Active.
Credit Cards	BSP Circular 1098 (Sept 24 2020): max 2 %/month (24 % p.a.) finance charge; ₱200 cap on processing fees. MB Circular 1165 (Aug 2022) raised cap to 3 %/month (36 % p.a.) in response to policy tightening; cap retained in Memorandum No. M-2024-006 (Jan 2024).	Active (3 %/mo.).
Micro-finance (≤ ₱150 k)	BSP Circular 409 (2003) requires flat & effective rate disclosure; no hard cap but must follow diminishing balance method; penalties cannot exceed 3 % of overdue amount.	Active.
Financing & Lending Companies	SEC Mem. Circular 7-2023 (Fintech Lending): total charges (interest + fees) may not exceed 15 % of principal per month for unsecured consumer loans ≤ ₱50 k and ≤ 180 days.	Active.
Buy-Now-Pay-Later (BNPL)	BSP Circular 1133 (Dec 2021): no uniform ceiling; but requires APR disclosure; BNPL providers treated as credit card issuers → subject to 3 %/mo. ceiling if they charge finance charges after “free” period.	Emerging area; expect tighter caps.

VII. Criminal Exposure

Usury as a crime effectively disappeared once ceilings were suspended (Circular 905).
However, estafa or abuse of confidence may apply if the lender falsifies loan disclosures or issues fake receipts.
Sangla-tira or 5-6 lenders can face anti-usury or illegal lending prosecution only if operating without SEC/BSP authority (RA 9474).

VIII. Disclosure & Documentary Rules

Truth in Lending Act (RA 3765) — requires Effective Interest Rate (EIR) disclosure prior to consummation; BSP Circular 730 (2001) prescribes computation.
Consumer Act (RA 7394) — treats nondisclosure of total price as deceptive practice.
Data Privacy — excessive collection (e.g., scraping contacts) by online lenders may violate RA 10173 and trigger SEC cease-and-desist.

IX. Tax Implications

Documentary Stamp Tax (DST) of ₱1.50 for every ₱200 of debt (Sec. 179, NIRC); DST becomes prohibitive for very short-term high-rate loans → another indirect brake on predatory micro-lending.
Interest expense is deductible only if withheld and remitted 20 % final tax for lenders not enjoying tax exemption.

X. Cross-Border and Islamic Finance

Foreign Currency Loans by resident borrowers still follow Circular 905; parties can stipulate LIBOR-based spread.
Islamic banking (RA 11439, 2019): profit-sharing replaces interest; BSP issues Shari’ah-compliant caps through the Shari’ah Advisory Council, currently 30 : 70 to 60 : 40 profit-split range.

XI. Reform Proposals on the Table (2024–2025 Congress)

House Bill 7999 — would restore a flexible ceiling equal to policy rate + 18 % for consumer loans ≤ ₱250 k.
Senate Bill 2285 (“Fair Lending Act”) — proposes algorithmic-lending audits, tiered caps (15 %, 24 %, 36 % p.a.) depending on loan size & secured status.
BSP Discussion Paper on Digital-Credit Ceilings (April 2025) — moots a 4 % per month umbrella cap across all non-bank digital lenders.

None is law yet; but lenders should track deliberations—passage is plausible within the 20th Congress (2025-2028).

XII. Compliance Checklist for Lenders (as of June 2025)

Check sector rules first (pawnshop, credit-card, fintech, etc.).
Disclose EIR, nominal rate, fees, penalties in Filipino and English; keep signed disclosure statements.
Avoid rates ≥ 48 % p.a. absent sophisticated borrower & commercial justification; otherwise document “risk premium” analysis to survive judicial review.
Apply penalties only to amount in arrears, not on total outstanding, and cap at 2–3 % per month to mirror jurisprudence.
Include severability clause allowing courts to strike usurious portions without voiding the whole loan.
Register with SEC/BSP and file quarterly reports on interest yields (FSC form).
For credit cards / BNPL, stay within 3 %/month and ₱200 fee caps; if profit margin tightens, explore merchant discount fees rather than raising interest.

XIII. For Borrowers: Practical Remedies

File civil action to reprice or annul the interest clause; request application of legal interest (6 %).
Raise unconscionability defense in collection suits; courts may still order you to pay principal + reasonable interest.
Report unregistered online lenders to SEC’s Financing & Lending Division (email flcd_queries@sec.gov.ph).
Complain to BSP-Consumer Assistance Mechanism for banks/credit-card issues (via CMS portal).

XIV. Conclusion

Since 1982 the Philippines has relied on market forces rather than blanket statutory ceilings, yet usury is far from dead. Courts, the BSP and the SEC actively prune abusive rates case-by-case, while certain retail segments now carry explicit caps (3 %/mo. pawnshops, 3 %/mo. credit cards, 15 %/mo. fintech micro-loans). The safe harbor for lenders lies in full transparency, proportional pricing, and sector-specific compliance. Conversely, borrowers retain potent tools—judicial review, administrative complaints and a growing body of consumer-protection rules—to keep interest rates within the bounds of fairness.

Key takeaway: No single “legal ceiling” governs all Philippine loans today, but multiple inter-locking rules together form an effective composite ceiling shaped by regulation, jurisprudence, and market discipline.