Usury and Unconscionable Interest Rates

With the suspension of the Usury Law and the removal of interest ceilings, the parties are generally free to stipulate the interest rates to be imposed on monetary obligations. As a rule, the interest rate agreed by the creditor and the debtor is binding upon them. This rule, however, is not absolute.

In a recent case, the SC again dealt with the validity of interest agreed by the parties, stating that:

Stipulated interest rates are illegal if they are unconscionable and the Court is allowed to temper interest rates when necessary. In exercising this vested power to determine what is iniquitous and unconscionable, the Court must consider the circumstances of each case. What may be iniquitous and unconscionable in one case, may be just in another.

In that case, the SC reduced the interest rate from 18% to 12% per annum, noting, among others, that the amount involved has ballooned to an outrageous amount four times the principal debt.

Indeed, there is no hard and fast rule to determne the reasonableness of interest rates. Stipulated interest rates of 21%, 23% and 24% per annum had been sustained in certain cases.

On the other hand, there are plenty of cases when the SC equitably reduced the stipulated interest rates; for instance, from 18% to 10% per annum. The SC also voided the stipulated interest of 5.5% per month (or 66% per annum), for being “excessive, iniquitous, unconscionable and exorbitant, hence, contrary to morals (“contra bonos mores”), if not against the law”. The same is true with cases involving 36% per annum, 6% per month (or 72% per annum), and 10% and 8% per month. In these instances, the SC imposed the legal interest of 12%.

Just to be clear, “legal interest” doesn’t mean that anything beyond 12% is “illegal”. It simply means that in a loan or forbearance of money, the interest due should be that stipulated in writing, and in the absence thereof, the rate shall be 12% per annum.


Sources: Trade & Investment Development Corporation of the Philippines vs. Roblett Industrial Construction Corporation (G.R. No. 139290, 9 May 2006); Development Bank of the Philippines vs. Court of Appeal; Garcia vs. Court of Appeals; Medel vs. Court of Appeals; Security Bank and Trust Company vs. RTC Makati; Spouses Solangon vs. Salazar; Cuaton vs. Salud; Ruiz vs. CA; Eastern Shipping vs. Court of Appeals, G.R. No. 97412 July 12, 1994.

54 thoughts on “Usury and Unconscionable Interest Rates

  1. Ryan

    Dear Atty.,

    I’m a government employee. I would like to be enlightened if the 30 percent per annum is still legal because this is the rate that the money lender charges me. Also, they do not issue any official receipt every time payment is made through my ATM card used as a collateral for my loan. I hope you can give me an advice regarding this issue becuase this may not only be useful for me but also for the others. Thank you so much.

  2. Don

    My partner and I bought a laptop via staggered pay option amounting to PHP 19000 payable in 1 year. We were able to pay 7 months but she got laid off and withmy smallsalary we couldn’t continue with our payment. Our last balance was only PHP 9445. Unfortunately, until now, she has not secured a job. We recently got a call that she has a bench warrant fornon payment, when we contacted the collection agency, they say that we need to pay 39000. We can’t pay 9445, how can we pay 39000? What options do we have to avoid court appearance or possible imprisonment? We have a child who can’t afford to lose a mother just because of a lousy laptop.


    BSP MB Circular No. 799, Series 2013 – when there is no stipulated interest in a contract of loan, the legal interest shall be 6%

    G.R. No. 211228 November 12, 2014

    “x x x.

    As to the correct rate of imposable interest, the petitioners argue that only 6% and not 12% is mandated pursuant to the ruling in Nacar.

    Nacaris instructive anent the rate ofinterest imposable upon the total adjudged monetary award, viz:

    [T]he Bangko Sentral ng Pilipinas Monetary Board (BSP-MB), in its Resolution No. 796 dated May 16, 2013, approved the amendment of Section 240 of Circular No. 905, Series of 1982 and, accordingly, issued Circular No. 799,41 Series of 2013, effective July 1, 2013, the pertinent portion of which reads:

    The Monetary Board, in its Resolution No. 796 dated 16 May 2013, approved the following revisions governing the rate of interest in the absence of stipulation in loan contracts, thereby amending Section 2 of Circular No. 905, Series of 1982:

    Section 1. The rate of interest for the loan or for bearance of any money, goods or credits and the rate allowed in judgments, in the absence of an express contract as to such rate of interest, shall be six percent (6%) per annum.

    Section 2. In view of the above, Subsection X305.1 of the Manual of Regulations for Banks and Sections 4305Q.1, 4305S.3 and 4303P.1 of the Manual of Regulations for Non-Bank Financial Institutions are hereby amended accordingly.

  4. Emily

    May loan po ako with a principal amount of P30k. Agreement is for 6 months. I already paid 20k and i was told remaining balance is 21k. And also interest is daily. Is this legally acceptable? Loan is exceeding 6 months not yet 7 mos.


    Dear atty,

    Ako po ay nagkautang last 2014 worth 100k nagbigay ako ng cheke pero walang date. Binigyan ako pero less na ang 20% interest. Binabayaran ko po sya hanggang ngayon KC nahirapan na po ako bayaran sya taong 2015. Ang nabayad ko na po ay mahigit 300 k plus na pero sabi nya nasa 70k pa ang utang ko. Gusto ko na matapos ito my mga resibo ako g ayment ko na IBA KC SA Palawan ko pinapadala para sa pangalan nya. Ngayon patuloy pa rin pananakot nya.

  6. annabeth

    Hi po,
    Nag loan po ako ng less than 15k sa atm lending company..after po mawalan ako ng work i tried to pay my debt pero single parent po ako ang nahirapan po ako magbayad. now may na receive po ako letter from DCA ang sabi ay 75k daw po ang utang ko (from 2012 to 2017) pede po ba na maging ganito kalaki ang amount..less than 15k na lang po ang utang ko at kakasuhan daw po ako..pls help me wala po ako means to pay hndi po ako makatulog..thanks

    1. ericka


      I have a loan in doctor cash worth of 7000 the amount that was given to me was only for 6100 so total amount payable on due date is 8800 breakdown 7000 orig amount and 1800 for interest
      i requested an extension, the first extension you have to pay interest of 1800 then 600 will be added on top of your total so 8800 plus 600 total is 9400 i didn’t have money cause i gave birth so i requested another extension i paid 2400 but then after the breakdown was sent to me it was added late payment charge of 780 and additional 500 for late payment is 10,680 this is so frustrating and after the due date has come i received this e-mail. I don’t have money to settle amount

      “For your serious consideration and guidance, the written ‘DEMAND for payment, SMS to your declared mobile number, private messages, field visits and all other means of communication made for the settlement of your due and demandable obligation to our client DOCTOR CASH, have been unjustifiably and maliciously ignored, hence, our said client has FINALLY DECIDED to possibly file in court the appropriate COMPLAINTS against you.
      Should the foregoing be brought in the small claims court, there is a possibility that the presiding judge may issue a writ of preliminary attachment, without notice and delay, cause the COURT SHERIFF to preliminary, LEVY, ATTACH, or SEIZE your real and/or personal properties or GARNISH your salaries and/or bank deposits not to mention possible violation of the ff:
      1) Civil case for sum of money
      2). Derogatory record to NBI
      3) Blacklisting with the Credit Management Association of the Philippines (CMAP)

      We are strongly advising you to contact tel 02 370 7062 should you still wish to show your good intention.”

      Despite our previous demands on your outstanding balance to our client Doctor Cash, you adamantly refuse to cooperate with us. In view of the foregoing, you are hereby given this FINAL DEMAND to pay in full your outstanding balance. Failure on your part to pay the aforesaid obligation within 24 hours shall constrain us to take the proper legal action to enforce the payment of your obligation. If we do not see any settlement within the given deadline, we will interpret your silence as an admission of your liability and we will proceed without further notice.”

  7. Brookw

    Dear attry
    I have get a phone from a company and payable for 1year i have paid a downpayment of 6500pesos the phone rate is only 18000 for a cashh but i have to pay for 1790 but if late i have to pay 1990 i paid for 3months so all in total i have paid 11,970 but they want to get 16900pesos from me and told me because was because of the late payment.

  8. miel

    I borrowed online in Moola Lending for the amount of P3,000.00 with stipulated interest of 30% and 10% processing fee monthly on Sept 3. I was in dire need to finance my medication so I took the chance to borrow hoping I can pay it next month. The net amount I received is P 2,700 (net of 10% processing fee)

    On Oct 2 , I paid P900.00 in 7eleven Dragon Pay for the 30% interest for the period covered Sept 4 to Oct 4,2017.

    I received an email from them telling me to settle P1,200 prolongation fee on or before due date or pay P 5,540 plus 700.00 listing fee next due date.

    In my analysis, they are computing 10% processing fee, 30% monthly interest, 700 listing fee on monthly basis.

    Do they have the right to demand payment for the P5,540.00 next month aside from the payment that I already given of P 900 Oct 2 and the prolongation fee of P 1,200.00.?

  9. Citibank Philippines Credit Card customer

    In some cases, credit card companies are actually charging 49% effective interest rate. As of January 2018, Citibank is charging a range of 43-49% effective interest rate in return for refinancing a single month’s balance due across a 12-month (up to 60-month) monthly payment plan. This is unconscionable.

  10. chenny

    what if you loan 1.5M and you failed to pay the interest of 30%? but you are willing the capital youve loan, but the person lend you the money insisted to pay the interest of 30% monthly plus 1%oenalty everyday, is it possible to sue the person who.lend the money

  11. Maria

    I am just soliciting advise from you guys. I had loaned an amount of P60,000.00 to a person with a promissory note to pay this in 6 months plus interest. What I understand of the loan was that I would be paying P12,000.00 per month for the next 6 months to fulfill the loan. However, when the time comes that I reached the 6 months period, and being it was December, I asked if I skipped the monthly payment and just pay on January plus additional interest. The person agreed, then she told me I will be paying 72,000 plus additional 12,000 for the interest for January. I was shocked because from what I understand that I would have fulfilled all my obligations. Still now I am paying the said loan. I don’t know if I can still continue paying. Please help. What legal remedies do I have for this?

  12. Jennavi

    Hi, I really need a help and wanted to be enlightened. Pls, anyone help me overcome from overthinking. Actually this is not my problem but to think that I was the guarantor for my Sister, it caused me stress a lot.

    To start, last 2015 she was realeased by a lending company a total amount of 85,000php and the company said the interest starts right after flight to taiwan.Because actually that money will supposed to pay for placement fee howerver, her visa was denied so after a week my sister returned the money. She was informed that it has an interest of 7,000 php and she refused to pay for she really give back the wholesome of the said amount. Now after 6 mos. they contacted my sister that the money become double the amount of the said interst or more than that because of the 2% interest plus tha 5%penalty. This year they said it was 12,000( interest), 7000 the original amount of interest. And there is more 5% penalty which they did not break down or include to their warning sent to our barangay. Last time they said it ballooned upto 40,000 including the penalty. Pls. Help me what to do? Or is it really necessary to pay that so much interest?


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