The Legal Rate Is 6% a Year
Since 1 July 2013, the legal rate of interest in the Philippines is 6% a year. It was set by the Bangko Sentral ng Pilipinas Monetary Board in BSP-MB Circular No. 799, series of 2013, and applied by the Supreme Court in Nacar v. Gallery Frames (G.R. No. 189871, 13 August 2013).
Legal interest applies when someone owes money and is late paying it, and there is no valid written agreement on interest. Under Article 1956 of the Civil Code, no interest is due on a loan unless it was expressly agreed in writing. But once the person who owes is late (in delay), interest at the legal rate can be charged as damages (Article 2209).
When Interest Starts to Run
The Nacar ruling sets these rules:
- Loans and similar debts (forbearance of money), for example unpaid loans: if no rate was agreed, 6% a year from the time the person is in default, that is, from the demand. A written Demand Letter is a demand made outside court (extrajudicial demand). Filing a case is a demand made in court (judicial demand).
- Other obligations (for example, damages for breach of a contract): the court may award 6% a year, from the demand if the amount was reasonably certain, otherwise from the date the court fixes the amount.
- After the court's decision becomes final: 6% a year on the amount awarded, from that date until it is fully paid.
This is why a dated Demand Letter matters. Keep proof of when the debtor received it.
Agreed Rates and High Interest
Parties may agree on a different rate, but it must be in writing. The old interest ceilings under the Usury Law are suspended, yet courts still lower rates they find unfair, excessive or against morals (iniquitous or unconscionable), and replace them with the legal rate. If your loan charges a very high monthly rate, the rate may not hold up in court.
This calculator gives simple interest only. Some agreements compound interest, and under Article 2212 of the Civil Code, interest that is already due can itself earn legal interest from the time it is demanded in court. Courts also decide the exact amounts in a case. For a debt in court, ask for help. The Public Attorney's Office helps people who qualify.
Common Questions
What Is the Legal Rate of Interest in the Philippines?
6% a year, since 1 July 2013 (BSP-MB Circular No. 799 and Nacar v. Gallery Frames). Before that, it was 12% a year for loans and similar debts.
From When Is Legal Interest Counted?
Usually from the date of demand: when the person who owes you received your written demand, or when you filed the case if there was no earlier demand. After the court's decision becomes final, interest runs until the amount is paid.
Can I Charge Interest If We Never Agreed on It?
Not as loan interest, because the Civil Code requires interest to be agreed in writing. But once the person is late after your demand, you can claim legal interest of 6% a year as damages.
Is 5% a Month Interest Legal?
There is no fixed ceiling, but courts have struck down rates like 3% to 5% a month or more as unconscionable and replaced them with the legal rate. Whether a rate is valid depends on the case.
Not legal advice. This is general information. For advice on your own situation, consult a lawyer. If you cannot afford one, the Public Attorney's Office (PAO) or an IBP legal aid office may help for free.
This is an estimate to help you plan. The BIR, the city or municipal treasurer or the Registry of Deeds works out what you actually pay.