Historically, the Usury Law (Act No. 2655) set interest rate ceilings, but these were effectively suspended by the Central Bank. In 2013, the Bangko Sentral ng Pilipinas (BSP) removed all interest rate ceilings for loans between parties.

This means that in principle, parties are free to agree on any interest rate, including 100% per year. However, the courts have the power to reduce interest rates that are deemed unconscionable, excessive, or contrary to morals, good customs, public order, or public policy.

The Supreme Court has consistently held that courts may reduce interest rates that are “excessive, unconscionable, or exorbitant.” In several cases, the Court reduced rates from 3% per month (36% per year) or higher to 1% per month or even 6% per year.

Factors courts consider include:

• The prevailing market rate at the time of the agreement
• The relationship between the parties (individual borrower vs. sophisticated lender)
• Whether the borrower was in a vulnerable position
• Whether the lender exploited the borrower’s need or lack of alternatives
• The total cost of the loan including all fees and charges

A 100% annual interest rate is almost certainly subject to reduction if challenged in court, especially if the borrower is an individual and the lender is a business or professional moneylender.

Beyond interest, lenders often charge penalty fees for late payment, processing fees, and other charges. The Supreme Court has also ruled that these must not be excessive. In many cases, the Court reduced combined interest and penalties to an amount not exceeding the principal loan amount. A rule of thumb: if the total charges (interest + penalties) exceed the principal, the Court may find them unconscionable.