Interest rate on loans between individuals cut

The standard interest rate prescribed by the Bangko Sentral ng Pilipinas (BSP) for loans between individuals has been cut in half to 6 percent, a new rule made public this week showed.

In a new circular, the BSP’s Monetary Board said that the governing interest rate “in the absence of stipulation” in loan contracts will be reduced from the previous 12 percent, which was set in 1982.

“The rate of interest for the loan or forbearance of any money, goods, or credits and the rate allowed in judgments, in the absence of an express contract as to such, shall be 6 percent per year,” BSP circular 799 said.

The new rate for loans takes effect on July 1.

BSP Deputy Governor Nestor Espenilla Jr. said the rule covers all loans between individuals. The new rate will also serve as the benchmark for courts when dealing with delayed payments between parties in civil cases.

According to local laws, interest may only be collected from borrowers if the payment of that premium is expressed in writing and agreed upon between the parties involved.

Hence, charging the BSP’s prescribed interest rate will only apply if both parties agree that the borrower pays interest, but the exact amount is not specified at first.

The 6-percent rate is the same as the prescribed interest rate under the country’s Civil Code.

Interest is charged when extending loans to make up for the lost value of the principal amount lent to borrowers due to inflation.

The BSP allows creditors to charge interest higher than the bank’s prescribed rate.

But raising interest rates to the point of hemorrhaging borrowers is banned.

The BSP, however, does not have an interest rate ceiling.

The reduction in the prescribed rate for loans where interest is not stipulated comes amid the stable inflation in the country.

Last year, inflation, or the rate of increase in the prices of basic commodities, averaged at 3.2 percent—a five-year low.

This year, monetary officials also expect average inflation to settle within the targeted 3 to 5 percent range.

Last May, inflation averaged at 2.8 percent, which was below the target.