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How Online Loan Interest Rates Actually Work in the Philippines
Two lenders can advertise the same rate and charge you very different amounts. The reason is that 'the rate' means at least four different things.
Published August 25, 2026
The rate on the poster is rarely the number that leaves your account. Not because lenders are hiding anything — usually the details are disclosed — but because short-term lending in the Philippines quotes cost in several different ways, and they are not comparable.
Once you can tell them apart, comparing offers becomes straightforward.
The four numbers
Nominal interest rate
The interest alone, with no fees. A "5% per month" headline is almost always this.
Useful for one thing only: comparing the interest component. It tells you nothing about what the loan costs, because it deliberately excludes everything else.
Effective interest rate (EIR)
Interest plus every mandatory charge — processing fee, service charge, disbursement fee, required insurance — expressed as a rate.
This is the number to compare. It is the only one that answers "what does this loan cost me?" in a form you can hold against another offer.
Add-on rate
Interest calculated on the full original principal for the whole term, even though you are paying the principal down as you go.
This is where a low-looking number hides a high cost. A 3% add-on monthly rate over 6 months is not 18% of what you actually owe on average — because after month three you owe roughly half the principal but are still paying interest on all of it. An add-on rate typically works out to something close to double the equivalent effective rate.
If a quote uses an add-on rate, it is not comparable to an EIR quote without converting it.
Total repayment
Principal plus everything else, in pesos.
Not a rate at all, and the most honest number in the set. "You will repay ₱11,400" cannot be misunderstood, converted, or annualised into something confusing.
Ask for this one. If a lender can tell you the total repayment for your amount and term, you can compare offers without any arithmetic.
What the law caps
Since 1 April 2026, small consumer loans in the Philippines carry legal ceilings. For unsecured, general-purpose loans of ₱10,000 or less with a term up to four months:
- Nominal interest: 6% per month maximum
- Effective interest rate: 12% per month maximum
- Late penalties: 5% per month on the outstanding scheduled amount
- Total cost: never more than 100% of the principal
Note the gap between 6% and 12%. That space is exactly where fees live — and it is why the EIR is capped separately. A lender charging 6% nominal plus fees reaching 12% effective is fully compliant and twice as expensive as the headline suggests.
Loans over ₱10,000, or longer than four months, are not covered by these ceilings. Full detail in the 2026 interest rate cap explained.
Try it with numbers
The calculator below uses a flat monthly rate applied pro-rata to the term, which is how most Philippine online lenders actually quote short-term credit. Move the term slider and watch the cost move with it — that relationship is the thing worth internalising.
Estimate your Crezu repayment
Illustrative only — the lender sets the final rate. Crezu sets your actual rate, fees and schedule and shows them on its own site before you sign. This is an illustration, not an offer.
Two things to notice:
Doubling the term roughly doubles the cost. The monthly amount falls, which feels cheaper, while the total rises. A longer term is not a discount; it is a different trade.
The principal scales linearly. Borrowing ₱15,000 instead of ₱10,000 costs half again as much in interest. The cheapest reduction in cost available to you is usually borrowing less.
The comparison that actually works
Forget rates for a moment and ask every lender the same three questions:
- For ₱X over Y days, what is the total I repay?
- What is deducted before the money reaches me?
- What happens if I pay late — and if I pay early?
Then put the answers side by side. Whichever total is lowest is the cheapest loan, regardless of how any of them described their rate.
The early-repayment question is the one people forget. Some lenders charge interest for the full term even if you settle in week two, which quietly removes the main advantage of paying early.
A note on annual percentage rates
You will sometimes see short-term loans expressed as an eye-watering annual figure — 200%, 400%. That arithmetic is correct but the framing is misleading in both directions.
These products are priced for weeks. Annualising a 21-day loan describes a scenario that is not meant to happen. On the other hand, if you roll a short loan over repeatedly, the annualised number stops being theoretical and becomes your actual experience.
The honest reading: judge a short-term loan by its total cost over its actual term, and treat the annual figure as a warning about what happens if it stops being short-term.
Before you commit
- Compare EIR or total repayment, never nominal rates
- Ask whether a quoted rate is add-on — it changes the comparison entirely
- Check whether the ₱10,000 / four-month caps apply to your loan
- Confirm the early repayment rule before you need it
- Compare several partners rather than accepting the first approval
Ready to check your offer with Crezu?
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