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.
[See also Excessive and Unconscionable Interest Rates in the Philippines]
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.
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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.
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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.
what if you loan 1.5M and you failed to pay the interest of 30%? but you are willing to.pay 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
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?
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?
hello po, anu po bang pwedeng gawin para maibalik yung land title ng lola ko? 200,000.00 po ang principal na utang , tumubo ng 1,180,000.00 , nakapagbayad po nga 680,000.00. the rest po na utang na 700k ay hindi na kayang bayaran. 2005 pa po ung utang, 13years po ang tubo nung una 4% tapos bumama sa 3.5 % .
Dear Atty,
I have tried a Cash Lending tru APPS or Applications and it turned out that their interest is so much higher and i refused to get that loan tru a credited padala center I barrowed P3,000. and they told me that i would only get is P2,500+ only and i will pay it in 7 days for P3,210 and if a failed to repay it for 4 days it will be charge to P3,900.
I just want to ask is this legal? base upon RA 9510 Section 4 (o) i have rights to dispute of this erroneos credit. Can you please make it clear to me.
Thanks,
Roland
I lend an amount of 4000 pesos to robocash and I need to pay it by 11 days for 5,320.it I failed to pay it with in 11 days they will charge me 4 % daily it’s been 20th day since the 11 days and my loan goes to 8,520. Is there any ways to stop the loan company to charge the daily 4% ?please help.
Hi. My mom borrowed a money from our relative with an 8% interest per month(or 96% per anum). They only have a verbal agreement for this. Now that our total debt went up 4 times the principal because our relative decided to compounded the unpaid interest. We cannot pay the total amount however we can pay the principal. I just wanna ask if this is legal?
Good morning i am katrinna yusop ex abroad nagtrabaho po bilang ofw sa riyadh ngunit 1 month lang po dahil sa pangit na gawain ng aking dating amo.. bago po ako umalis ay nagapply po aq ng ofw loan sa global dominion financing inc. At cinikap po nmin mghulog sa kbila ng aking kapalaran. Minsan ay nsa tamang ayaw ng byarang minsan ai nahuhuli. Ng aking tnhning ang aking balance laking gulat ko na kapag ka pala nahuhuli ang aking hulog ay 1000 ang interest.. kaya malaki pla ang aking balance dahil hindi pumapasaok ang aking bayad sa principal amount kundi sa interest lamang.. at may isa pong manager ng global dominion ang hindi maganda ang pkitungu saakin.. paano na lamang po kung my iba pang ofw ang mgapply skanila at gnon din ang mangyri ngbbyad lng ng malaking interest 1000 kada isng buwan kapag nhuli ng hulog kahti 1 araw lamang. Maaari nyu po ba ako g payuhan at tulungan?
Good day. Is the opinion on usury and unconscionable interest rates still valid to this day? Since this piece was first written in 2006, I would like to know if other bills were signed into law that would impact the opinion.
Thank you.