Question & AnswerQ&A (PRESIDENTIAL DECREE NO. 116)
The maximum interest rate allowed for loans secured by a mortgage on registered real estate is twelve percent per annum or the maximum rate prescribed by the Monetary Board and in force at the time the loan or renewal thereof or forbearance is granted.
The Monetary Board of the Central Bank of the Philippines is authorized to prescribe and change the maximum rate or rates of interest for loans or forbearance, based on prevailing economic and social conditions, but not more often than once every twelve months.
For loans that are not secured by mortgage or similar security, the maximum interest rate allowed is fourteen percent per annum or the maximum rate prescribed by the Monetary Board at the time the loan or forbearance is granted.
Pawnbrokers or their agents cannot charge higher rates than 2.5% per month for loans less than 100 pesos; 2% per month for loans from 100 to 500 pesos; and 14% per annum for loans exceeding 500 pesos or the maximum rate prescribed by the Monetary Board in force at the time. They must be duly licensed with an establishment open to the public, and are prohibited from dividing the pawned item to charge higher interest or requiring additional insurance premiums.
Compound interest is not allowed except by agreement between the parties. If agreed upon, the effective rate charged must not exceed the equivalent of the maximum rate prescribed by the Monetary Board.
All contracts or agreements stipulating, charging, or receiving interest rates higher than those allowed are void, except for clerical errors made without intent to evade the law. Additionally, parties may agree that the original interest rate agreed upon prevails despite later changes by the Monetary Board.
Violations are punishable by a fine of not less than 50 pesos and not more than 500 pesos, or imprisonment from 30 days to 1 year, or both. The guilty party must also return the entire amount of interest received, with subsidiary imprisonment for non-payment. Corporate managers or administrators can be held criminally liable.
The Monetary Board shall consider: 1) existing economic conditions and national economy requirements, 2) supply and demand for credit, 3) the rate of inflation or increase in price levels, and 4) other relevant criteria the Board may adopt.
No, it is unlawful for pawnbrokers or their agents to require pawners to pay additional charges as insurance premiums for safekeeping or conservation of the pawned articles.
Interest may be paid in advance but not for a period exceeding one year. When interest is paid in advance, the effective interest rate charged must not exceed the equivalent of the maximum rate prescribed by the Monetary Board.