The Short Answer
There is no fixed legal limit today: the old maximum rates (interest ceilings) have been suspended since 1982. But a lender can charge only the interest that was agreed in writing, and courts cut down rates they find shockingly high, such as 5-6 lending or 5% a month and up. When a rate is struck down, or none was written, the court usually applies the legal rate of 6% a year.
Example: Joy's ₱50,000 Loan in Tanauan
Names and details in this example are made up.
Joy Mendoza owns a sari-sari store in Barangay Poblacion, Tanauan City, Batangas. In January 2025 she borrowed ₱50,000 from a private lender to restock. She signed a Promissory Note: "with interest of 5% a month until fully paid". Business was slow, and by January 2026 she had paid nothing.
| Rate | Interest for One Year on ₱50,000 |
|---|---|
| 5% a month, as written (60% a year) | ₱30,000 |
| 6% a year legal rate | ₱3,000 |
The lender demands ₱80,000. Is the 5% a month valid? It was put in writing, so interest is due. But the Supreme Court has struck down rates of around 5% a month as unconscionable (so unfair they go against morals) in several cases. If the lender sues, a court may refuse to enforce the 5% and apply the legal rate or a lower rate it finds fair. Joy would still owe the full ₱50,000 she borrowed.
Her neighbour's 5-6 loan. Joy's neighbour Tess borrowed ₱5,000 from a "five-six" lender who comes by on a motorcycle, and pays ₱6,000 in daily hulog over a month. That is 20% a month, or about 240% a year. Nothing was written, so under the Civil Code the extra ₱1,000 is not collectible as interest at all. Only the ₱5,000 is.
Joy can compare the amounts with the legal interest calculator. She can also offer the lender a written payment plan for the principal (the amount borrowed) plus a reasonable rate.
The Old Ceilings Are Suspended
The Usury Law, Act No. 2655, once set maximum interest rates. In 1982, Central Bank Circular No. 905 removed those ceilings for most loans. Since then, lenders and borrowers are generally free to agree on a rate.
That freedom has two limits:
- The rate must be in writing. Article 1956 of the Civil Code says no interest is due unless it was expressly agreed in writing. A spoken rate cannot be collected as interest.
- The rate must not be unconscionable. The Supreme Court has said the suspension of the ceilings is not a license to charge rates that enslave the borrower or drain their assets. Such rates are void (of no effect), even if the borrower signed.
What Rates Courts Have Struck Down
There is no exact cut-off. Courts look at the rate, the amount, how long it ran, and the situation of the parties. Still, some patterns are clear from decided cases:
- In Medel v. Court of Appeals (1998), the Supreme Court struck down 5.5% a month (66% a year) as iniquitous and unconscionable (grossly unfair).
- Rates of 5% a month and higher have repeatedly been cut down. Rates of 3% a month have been reduced in some cases and allowed in others.
- 5-6 lending works out to around 20% for a short term, often a month or less. That is far above rates the courts have struck down, and it is usually not in writing anyway.
When a court voids the rate, the loan itself stays. The borrower still owes the principal (the amount borrowed), and the court usually replaces the void rate with the legal rate or a reduced rate. Late payment penalties that are too high can also be reduced.
Legal Interest: 6% a Year
Since 1 July 2013, the legal rate of interest is 6% a year, under Bangko Sentral ng Pilipinas Monetary Board Circular No. 799 (BSP-MB Circular No. 799), as applied by the Supreme Court in Nacar v. Gallery Frames (2013). It applies when:
- no interest was agreed in writing, and the borrower is late after being asked to pay (a demand), counted from the demand;
- a written rate is struck down as unconscionable; and
- a court orders you to pay, from the time its decision becomes final until full payment.
Compute it with the legal interest calculator.
Lending Companies, Apps and Banks
- Disclosure. Under the Truth in Lending Act, Republic Act No. 3765 (RA 3765), lenders in the business of extending credit must tell you in writing, before the loan, the full finance charges and the effective interest rate. Ask for the disclosure statement.
- Lending and financing companies, including online lending apps, are registered with the Securities and Exchange Commission (SEC). The SEC has set limits on interest and fees for some small, short-term loans. Check the current SEC rules and see what online lenders can legally do.
- Interest on interest (compounding) is allowed only if the agreement says so in writing; otherwise unpaid interest earns interest only after it is demanded in court.
For how to put a loan and its interest in writing, see lending money and writing it down.
Common Questions
Legal ba ang 5-6?
Lending money is legal, but the interest is a different matter. If the 5-6 rate was never written down, the lender can collect only what was lent (Civil Code, Art. 1956). Even if written, a rate of about 20% a month is far above rates the courts have struck down as unconscionable.
Is There a Maximum Interest Rate in the Philippines?
Not a general one. The Usury Law ceilings were suspended by Central Bank Circular No. 905 in 1982. But courts void rates that are unconscionable, and the SEC sets limits on some small loans from lending and financing companies.
I Signed a Note With 10% a Month Interest. Do I Have to Pay It?
You owe what you borrowed. Whether the 10% a month holds up is for a court to decide, but rates at that level have been struck down in decided cases. Offer a written payment plan, keep receipts of every payment, and get legal advice. The Public Attorney's Office helps people who qualify.
What Interest Can I Charge a Friend I Lend To?
Any reasonable rate you both sign. Write it clearly, for example "1% a month" or "12% a year", and say whether it is simple or compounded. Use the Promissory Note template. A rate the courts would find excessive may not be enforced.
What Is the Legal Interest Rate Now?
6% a year, since 1 July 2013 (BSP-MB Circular No. 799 and Nacar v. Gallery Frames).
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.
Government fees, rules and requirements change, so always check with the office concerned before you go. This page explains the general rules; it cannot tell you how they apply to your own family or case. Last reviewed October 8, 2026.