A Philippine legal article on what interest rates are “legal,” what rules govern online lenders, when the 6% legal rate applies, and how courts and regulators treat excessive charges.

1) The core confusion: “legal interest rate” vs “allowed interest rate”

In Philippine lending law, three different ideas often get mixed up:

Contractual interest – the rate the parties agree on (e.g., “3% per month”), plus fees and penalties in the contract.
Legal interest – the default interest imposed by law/jurisprudence when no valid rate is stipulated, or as interest on judgments/damages (commonly 6% per annum under the post-2013 framework).
Usury ceiling – a maximum interest rate set by statute. The Philippines generally does not have a single fixed usury cap applicable to ordinary private loans today because the statutory ceilings under the Usury Law were effectively lifted by central bank action decades ago. As a result, many online lenders can charge high rates—but they still face limits through contract law, consumer disclosure laws, and the courts’ power to strike down unconscionable terms.

So, asking “What is the legal interest rate for online lending apps?” requires separating:

What rate is automatically applied by law (legal interest), from
What rates online lenders are allowed to stipulate, and
When stipulated rates become unenforceable or reduced.

2) Who regulates online lending apps (and why it matters for “interest legality”)

An “online lending app” in the Philippines can fall under different legal regimes depending on what the entity actually is:

A) SEC-regulated lending companies and financing companies (most lending apps)

Many apps are operated by, or tied to, entities registered with the Securities and Exchange Commission (SEC) as:

Lending Companies (under RA 9474, the Lending Company Regulation Act), and/or
Financing Companies (under RA 8556, the Financing Company Act)

These entities must typically have a Certificate of Authority and comply with SEC rules and issuances covering licensing, disclosure, and prohibited practices (including abusive collection and misleading marketing).

B) BSP-supervised entities (banks, digital banks, certain non-bank financial institutions)

If the lender is a bank or otherwise BSP-supervised, BSP consumer protection and prudential rules apply.

C) Cooperatives, pawnshops, or other special regimes

Some lending is done through cooperatives or other regulated sectors with distinct rules and oversight.

Why this matters: “Legal” pricing is not just about the number on the interest line. It includes licensing, required disclosures, what charges may be imposed, and what collection practices are prohibited.

3) Is there a maximum interest rate (a “cap”) for lending apps?

A) General rule: no single fixed statutory cap for ordinary loans

The Philippines’ general lending environment has been liberalized: parties are largely free to agree on interest rates under the principle of freedom of contract.

B) But interest can still be unlawful or unenforceable in practice

Even without a universal cap, interest and charges can be attacked on several grounds:

No valid stipulation (Civil Code Article 1956) Interest is not due unless it is expressly stipulated in writing. If the lender cannot prove a valid written/electronic stipulation of interest, the borrower may owe no contractual interest—only the principal, and possibly legal interest as damages if there is delay.
Unconscionable / iniquitous interest (jurisprudence) Courts may reduce interest rates and penalty charges that are shocking, excessive, or imposed under oppressive circumstances. This is one of the most important “real-world caps.”
Excessive penalties and layered charges (Civil Code Article 1229 and related doctrines) Even if interest is stated, courts can reduce penalty clauses (late fees, default charges) if they are iniquitous or unconscionable.
Disclosure and consumer protection violations A lender may face liability if it misstates the cost of credit or hides fees (see Truth in Lending and consumer protection rules below).

4) The “legal interest rate” in the Philippines (the default 6% framework)

The “legal interest rate” most often discussed in court decisions today is 6% per annum (with important context and applications).

A) When 6% per annum applies

Under the modern framework (post-2013 jurisprudence applying the BSP’s adjustment), 6% per annum is commonly used in these situations:

No stipulated interest on a loan/forbearance If a loan is proven but the parties did not validly stipulate an interest rate (or the stipulation is invalid), courts may impose 6% per annum as legal interest for the forbearance of money, depending on the posture of the case.
Interest as damages for delay (Civil Code Article 2209) When a debtor is in delay in paying a sum of money, the indemnity for damages is generally the legal interest, commonly applied at 6% per annum, typically reckoned from demand (judicial or extrajudicial) depending on the case.
Judgments involving monetary awards Monetary judgments often earn 6% per annum from finality of judgment until full satisfaction, under the prevailing framework.

B) Historical note (12% vs 6%)

Older cases and older contracts sometimes refer to 12% per annum as legal interest because that was the long-standing benchmark before the shift to 6%. In disputes spanning different time periods, courts may apply transitional rules depending on when the obligation and delay occurred.

Practical takeaway for online lending disputes: The “legal interest rate” (6% p.a.) is usually relevant when:

the contract’s interest term is defective/unenforceable, or
the case becomes a damages/judgment computation issue. It is not automatically the ceiling that lending apps must follow in pricing their loans.

5) Contractual interest: what makes an app’s interest clause enforceable

A) It must be expressly agreed “in writing”

Civil Code Article 1956 requires interest to be expressly stipulated in writing. In online lending, “writing” is commonly satisfied through:

electronic contracts and click-accept workflows,
digitally presented disclosures acknowledged by the borrower, and
electronic records recognized under the E-Commerce Act (RA 8792).

If the lender cannot produce credible records of what the borrower agreed to (rate, fees, repayment schedule), the borrower can challenge enforceability.

B) The whole price of credit matters, not just the nominal rate

Online lenders often quote:

a low “monthly interest,” while charging high processing fees, service fees, delivery fees, collection fees, or “membership” charges that function as finance charges.

In disputes, these amounts may be treated as part of the effective cost of credit, and can fuel arguments that the transaction is unconscionable or deceptive.

6) Fees, penalties, and “interest on interest” (how charges snowball legally)

Online lending apps often structure cost through multiple layers:

A) Penalty charges and liquidated damages

Late payment fees and default penalties are generally allowed if agreed, but courts may reduce them if excessive (Civil Code Article 1229).

B) Compounding (interest on interest)

Compounding is not automatic. It generally requires a clear stipulation. Separately, Civil Code Article 2212 provides that interest due can itself earn legal interest from judicial demand, which matters once a case is filed.

C) Multiple charges for the same default event

A borrower may challenge “stacked” charges (e.g., interest + penalty interest + fixed late fee + daily collection fee) as:

double recovery,
iniquitous penalty, or
unconscionable overall burden.

7) Truth in Lending Act: disclosure duties that affect “legality” of interest pricing

The Truth in Lending Act (RA 3765) requires lenders in covered credit transactions to disclose, prior to consummation, key loan terms such as:

finance charges,
the effective interest rate (or equivalent disclosure concept),
amount financed, and
repayment schedule and other material terms.

Even when an app’s interest rate is not capped, failure to properly disclose the true cost of credit can create regulatory exposure and can undermine enforceability or support claims of deceptive practice, depending on facts and forum.

8) Unconscionable interest: the de facto “cap” created by courts

A) What courts look at

Philippine jurisprudence does not fix a single numeric threshold for unconscionability. Courts typically evaluate:

the monthly/daily rate and its annualized effect,
the borrower’s bargaining position and whether terms were oppressive,
the presence of hidden charges,
whether the rate is grossly disproportionate to risk and practice,
whether penalties are punitive rather than compensatory, and
overall fairness and public policy considerations.

Rates stated as “per day” are frequently attacked because small daily percentages can translate to extremely high annualized costs, especially when paired with fees and short tenors.

B) Common judicial outcome patterns

When interest/penalties are found unconscionable, courts often:

reduce the contractual interest to a more reasonable rate, sometimes aligning with older judicial benchmarks (e.g., 12% p.a. in older eras) or with the modern legal interest environment (often 6% p.a.), and/or
strike or reduce penalty charges, and
recompute the obligation based on equity and applicable legal interest rules.

Important: Unconscionability analysis is fact-driven. The same nominal rate can be treated differently depending on transparency, borrower understanding, tenor, and whether the lender’s total pricing is oppressive.

9) Effective interest rate: why many app loans look “legal” on paper but explode in practice

Online lenders often structure repayment in a way that makes the effective annual percentage rate (APR) far higher than what borrowers perceive.

Example (illustrative math)

Principal (cash received): ₱10,000
Tenor: 30 days
Stated “interest”: 2% per day (simple)
- Interest for 30 days = 0.02 × 30 = 0.60 → 60%
- Amount due (before fees): ₱16,000

If the borrower also paid a ₱1,000 “processing fee” up front (reducing net proceeds to ₱9,000), the effective cost becomes even higher.

This is why regulators and courts focus heavily on:

net amount received,
all charges deducted or imposed, and
the true repayment obligation.

10) Regulatory enforcement issues tied to pricing (beyond the number)

Even if a lending app’s price is not capped, the lender may still violate Philippine law through:

A) Misrepresentation and deceptive marketing

Quoting “low interest” while burying large fees can support complaints under consumer protection concepts and lending disclosures.

B) Unfair debt collection practices

SEC-regulated lending/financing companies and their online platforms have been subject to enforcement actions for abusive collection (harassment, threats, shaming, contacting third parties). While this is not “interest rate law,” it commonly arises in the same disputes and can trigger sanctions.

C) Data privacy violations

Apps that access contacts/photos/messages beyond what is necessary (or use data for shaming/collection) risk exposure under the Data Privacy Act (RA 10173). This can intersect with pricing disputes when collection pressure is used to force payment of disputed interest and fees.

11) Borrower remedies when rates/charges feel illegal or abusive

A) Contract and court defenses

In a collection case (including small claims where applicable), a borrower may raise:

no valid written/electronic stipulation of interest (Art. 1956),
unconscionable interest/penalties (seek judicial reduction),
improper compounding or stacked charges,
incorrect application of payments (e.g., all payments applied to fees first), and
lack of proof of the actual loan terms accepted.

B) Regulatory complaints (when the lender is within the regulator’s reach)

SEC (for lending/financing companies and their online lending platforms)
BSP (if the lender is a BSP-supervised entity)
NPC (for privacy/data misuse tied to the loan and collection)

C) Civil actions for damages

Where conduct involves deception, harassment, or privacy invasion, civil claims may be pursued alongside or separate from the debt dispute, depending on facts.

12) Lender compliance essentials (what makes rates and charges defensible)

For online lending businesses, enforceable and defensible pricing typically depends on:

Proper licensing/authority (SEC or BSP as applicable)
Clear, provable electronic consent to the exact rate, fees, penalties, and schedule
Full disclosure of the total cost of credit (not just a headline rate)
Reasonable penalties that are compensatory rather than punitive
Transparent statements of account and proper application of payments
Lawful, non-abusive collection practices and strict privacy compliance

13) Bottom line rules to remember

There is no single universal “maximum legal interest rate” that automatically governs all online lending apps in the Philippines.
The commonly cited 6% per annum is the legal interest rate used as a default in specific situations (no valid stipulated interest, interest as damages for delay, and post-judgment interest computations), not a blanket cap on app pricing.
The strongest practical limits on app interest/charges come from:
- Article 1956 (interest must be expressly stipulated in writing/electronic record),
- unconscionability doctrines (courts can reduce excessive rates and penalties),
- penalty reduction rules (Article 1229), and
- disclosure/consumer protection and regulatory compliance requirements.