Question & AnswerQ&A (BSP CIRCULAR NO. 730, S. 2011)
Banks may only charge interest based on the outstanding balance of a loan at the beginning of an interest period. For loans with installments, interest per period is calculated based on the outstanding balance at the beginning of each installment period.
All loan-related documents must show repayment schedules consistent with the provision that interest is computed on the outstanding loan balance at the beginning of each interest or installment period.
Finance charge includes interest, fees, service charges, discounts, and other charges incident to the extension of credit.
Simple annual rate is the uniform percentage representing the ratio between the finance charge and the amount to be financed, assuming the loan is payable in one year with a single payment on maturity and no upfront deductions.
The EIR should be calculated and disclosed as the relevant true cost of the loan, comparable to the simple annual rate, and for loans with contractual monthly rates, it may be expressed as a monthly rate.
The effective interest rate is the rate that exactly discounts estimated future cash flows through the life of the loan to the net amount of loan proceeds, using prescribed methodologies for discounted cash flow models.
The total amount to be financed, finance charges in pesos and centavos, the net proceeds of the loan, and the percentage the finance charge bears to the total amount (expressed as simple annual rate or effective annual interest rate).
Banks are required to furnish each borrower a copy of the disclosure statement prior to the consummation of the loan transaction.
Banks must post in conspicuous places in their principal offices and branches the disclosure statement format information, including a notification that the disclosure statement is a required attachment to the loan contract and that customers have a right to demand a copy.
The circular took effect on July 1, 2012.