Quick answer
Compare consumer loans using three figures: the cash you actually receive, the effective interest rate (EIR), and the total amount you will repay in pesos if you pay on time. Ask for the written disclosure statement and repayment schedule before signing or accepting in an app. A low advertised rate or monthly installment can hide upfront deductions or a longer, more expensive repayment term. Use the same rate period when comparing EIRs. Truth in Lending Act · BSP loan calculator lawphil.net
To check whether a charge exceeds a legal ceiling, identify the actual lender, loan type, principal, repayment term, and date the loan was made, renewed, or restructured. The Philippines has no single interest ceiling for every consumer loan. Qualifying small loans from lending and financing companies have specific limits, and credit cards follow separate Bangko Sentral ng Pilipinas (BSP) rules. Supreme Court E-Library
Get the full price before you accept
Under Republic Act No. 3765, the Truth in Lending Act, a covered creditor must give you a clear written disclosure before the credit transaction is completed. It must show the applicable items, including the amount financed and the finance charge in pesos. For a financed purchase, the law also calls for applicable details such as the cash price, down payment or trade-in, and individually itemized charges unrelated to extending credit. BSP rules require banks to calculate interest on the outstanding balance at the start of each interest period and to disclose the effective rate under the applicable rules. Truth in Lending Act, sections 3–4 · BSP Circular No. 730 lawphil.net
Get a copy you can keep and check these figures against the contract and payment schedule.
| What to check | What to look for |
|---|---|
| Principal and net proceeds | The amount borrowed, each deduction, and the amount that will actually reach your account or wallet |
| Interest | The quoted rate, whether it is daily, monthly, or annual, and the balance used to calculate it |
| Fees | Each processing, service, verification, insurance, or other charge, whether it is required, and whether it is deducted, paid separately, or added to the balance |
| Repayment schedule | The amount and due date of every payment, including any larger final payment |
| EIR | The effective rate and its period, based on the net proceeds, applicable charges, and timing of payments |
| Charges triggered later | Late-payment penalties, early settlement fees, and the cost of renewal or restructuring |
If an offer says “0% interest,” check whether you pay a required fee or a higher price for buying on installment. For cash loans, compare net proceeds. For financed purchases, start with the cash price and compare it with the down payment plus all scheduled payments and any required fees paid separately. Count each charge once. lawphil.net
Compare the EIR and the peso cost
A nominal rate is the stated interest rate before applicable fees are factored in. An add-on rate generally computes interest using the original principal for the stated term. With diminishing-balance interest, the calculation uses the outstanding principal for each period. An add-on rate and a diminishing-balance rate with the same quoted percentage can produce different costs. The EIR puts the proceeds and scheduled payments on a comparable basis by accounting for their amounts and timing. BSP Circular No. 730 · BSP loan calculator bsp.gov.ph
Suppose a lender approves ₱10,000, deducts a ₱500 processing fee, and requires six monthly payments of ₱1,800. You receive ₱9,500, repay ₱10,800, and pay ₱1,300 in borrowing costs if you pay on schedule and there are no other charges. The ₱500 is already reflected in the lower proceeds. The ₱1,300 is a peso cost. Calculating the EIR also requires the timing of those six payments.
When comparing offers, use roughly the same usable proceeds and term where possible. Then compare the EIR, the total peso cost, and the actual due dates. A longer loan can have a smaller installment and still cost more overall. If you expect to settle early, ask for a payoff quote for your intended payment date. Republic Act No. 11765 allows borrowers to prepay in whole or in part before maturity and requires disclosure of any prepayment costs or fees. Ask how a partial prepayment will affect your balance and schedule. Financial Products and Services Consumer Protection Act, section 8 lawphil.net
Check which legal ceiling applies
Small loans from lending and financing companies
SEC Memorandum Circular No. 14, series of 2025, applies to covered loans entered into, renewed, or restructured from April 1, 2026. The loan must be unsecured, for general purposes, for ₱10,000 or less, and for four months or less. The rule covers loans offered by lending and financing companies, including through their online lending platforms. Check the company named in your disclosure statement or agreement, since the app name may differ from the lender’s legal name. SEC Memorandum Circular No. 14, series of 2025 Securities and Exchange Commission
| Charge | Ceiling for covered loans |
|---|---|
| Nominal interest | 6% per month |
| Effective interest rate | 12% per month, including applicable fees and charges but excluding late-payment or nonpayment penalties |
| Late-payment or nonpayment penalties | 5% per month on the outstanding scheduled amount due |
| Total cost | 100% of the amount borrowed for interest, fees, charges, and penalties combined, regardless of how long the loan remains outstanding |
The total-cost ceiling applies to charges. On a covered ₱8,000 loan, those charges can total at most ₱8,000, with the principal accounted for separately. Each individual ceiling also applies. For older transactions covered by the prior rules, the monthly EIR ceiling was 15%. Check the original agreement and any renewal or restructuring documents before choosing which rule to use. SEC Memorandum Circular No. 14, series of 2025 · SEC Memorandum Circular No. 3, series of 2022 · BSP Circular No. 1133 Securities and Exchange Commission
Credit cards and other loans
Under BSP Circular No. 1165, the ceiling for credit card interest or finance charges is 36% per year, with a separate 1% monthly add-on ceiling for credit card installment loans. For a credit card cash advance, the issuer may charge the applicable interest and a processing fee of up to ₱200 per transaction. Check whether a cash offer is booked as a card installment, a cash advance, or a separate personal loan. BSP Circular No. 1165 bsp.gov.ph
If a loan falls outside these ceilings, check the rules for that product and the written agreement. Under Article 1956 of the Civil Code, agreed interest for the use of borrowed money must be expressly stipulated in writing. Interest as damages for delay is a separate question. Courts can also set aside or reduce unconscionable interest depending on the terms and circumstances. A successful challenge to an interest clause generally leaves the obligation to repay the principal in place. Siga-an v. Villanueva · Advocates for Truth in Lending v. Bangko Sentral Monetary Board Supreme Court E-Library
What to do if the figures look wrong
- Preserve the offer and your records. Save the ad, screenshots of the final offer and acceptance screens, disclosure statement, signed agreement, and repayment schedule. Keep bank or e-wallet records showing the actual release, payment receipts, account statements, and any renewal or restructuring agreement. Save dated collection messages and complaint reference numbers.
- Dispute the specific charge in writing. Identify the amount and date, explain the difference you found, and request the contractual basis and an itemized computation. Ask the lender to show how it applied your payments to principal, interest, fees, and penalties. If you believe a ceiling applies, include the loan amount, term, and relevant transaction date. Ask for a corrected statement and the lender’s proposed resolution.
- Use the channel that matches the lender or issue. For a bank or other BSP-supervised institution, first lodge a formal complaint with the institution. Escalate an unresolved concern through the BSP Consumer Assistance Mechanism. For an SEC-regulated lending or financing company or its app, follow the SEC’s complaint instructions and file through SEC iMessage. If the operator appears unauthorized, identify it as such when reporting it to the SEC. For misuse or disclosure of personal data, see the National Privacy Commission’s complaint procedure. Consumer Protection
Get legal help promptly if you receive a court summons, face imminent repossession or foreclosure, or are close to a filing deadline. If a collector threatens violence or there is an immediate safety risk, contact the police and preserve the messages. For public shaming or misuse of contacts, preserve the original posts or messages, including dates and sender details. The SEC and NPC have issued joint guidance addressing these collection practices. DICT–NPC–SEC advisory on online lending platforms privacy.gov.ph
For the specific civil remedy under section 6(a) of the Truth in Lending Act, the law provides one year from the violation to bring the action. Other claims and proceedings can have different deadlines. If a deadline is approaching, get advice on it while the lender or regulator handles your complaint. Truth in Lending Act, section 6 lawphil.net
Common mistakes
- Comparing rates with different periods or methods. Check whether each rate is monthly or annual, nominal or effective, and add-on or based on a declining balance.
- Using the approved amount as cash received. Reconcile the actual deposit with each upfront deduction.
- Checking only the next installment when renewing. Ask for the new total repayment, the old balance carried over, the new fees, and any fresh cash you will receive.
- Assuming a complaint pauses payment or a court deadline. Confirm any payment arrangement in writing and respond to court papers by the stated deadline.
- Paying a collector through an unverified account. Confirm the collector and payment channel with the lender using its official contact details. Keep the receipt.
Frequently asked questions
Is 6% per year the maximum interest a lender can charge?
No. The 6% annual legal interest rate applies in particular situations, including certain awards of interest for delay. Contractual rates are subject to the rules for the product and may be challenged if unconscionable. The 6% monthly nominal ceiling for covered small loans is a separate rule. elibrary.judiciary.gov.ph
Can a lender charge a processing fee on top of interest?
A processing fee may be charged where the applicable rules permit it. Check whether it was disclosed and included in the effective rate where required. For a covered small loan, applicable processing fees count toward the EIR and total-cost ceilings. lawphil.net
Does a missing disclosure statement erase the loan?
A disclosure violation does not by itself cancel the debt under the Truth in Lending Act. You can request the disclosure and a corrected computation, raise the issue with the appropriate regulator, and seek advice about the remedies available for the particular charges. lawphil.net
Can the lender charge me for paying early?
The law allows full or partial prepayment before maturity and requires disclosure of any prepayment fee. Request a dated payoff quote showing the balance, any fee, and the amount needed to close the account. If you are paying only part of the loan, request the updated repayment schedule. lawphil.net
This article provides general Philippine legal information. The applicable rules and remedies depend on the lender, product, transaction dates, and loan documents. Sources checked on November 9, 2026.