5-6 lending in the Philippines: what the law says

What 5-6 actually costs

Borrow ₱5,000, repay ₱6,000. If the term is one month, that is 20% a month. Most people do not borrow once: they pay off one cycle and take the next to cover the gap, so the ₱1,000 repeats every month. Over a year of rolling, you pay ₱12,000 in interest on ₱5,000 that never stopped being owed.

Write down every hulog and the date. Collectors keep their own card; you should have yours. If 5-6 is how you bridge to payday, budgeting each cut-off is the way out of the loop.

Interest must be agreed in writing

Article 1956 of the Civil Code says: “No interest shall be due unless it has been expressly stipulated in writing.” A verbal “lima, anim” is a promise to repay the ₱5. Whether the extra ₱1 can be demanded depends on whether the interest was written down and signed.

Owing the principal is a different matter. If you borrowed it, you owe it back, writing or no writing.

Is there a legal maximum interest rate?

Not a general one. The Supreme Court explains in Medel v. Court of Appeals (G.R. No. 131622, 1998) that Central Bank Circular No. 905, adopted on December 22, 1982, removed the interest ceilings of the Usury Law. The Court added that the circular did not repeal the Usury Law but suspended its effectivity. Because of that, Article 1413, which lets a debtor recover interest paid beyond what the usury laws allow, has little to bite on today.

That is not the end of it. In the same case the Court found 5.5% a month, or 66% a year, “excessive, iniquitous, unconscionable and exorbitant”, declared the stipulation void, and applied 12% a year instead. Courts decide this case by case, but a 5-6 rate of 20% for a month or less sits well above the rate the Court refused to enforce in Medel.

BSP caps cover companies, not your neighbour

BSP Circular No. 1133 (2021) sets ceilings on unsecured, general-purpose loans of up to ₱10,000 with terms of up to four months, but only when they are offered by lending companies, financing companies and their online lending platforms. For those loans:

• Nominal interest is capped at 6% a month.
• Effective interest, including fees, is capped at 15% a month.
• Late-payment penalties are capped at 5% a month on the amount due.
• Everything together, interest, fees and penalties, cannot exceed 100% of the amount borrowed, however long the loan runs.

A neighbour or a roving collector lending their own money is not a lending company, so these caps do not apply to them directly. They are still a useful yardstick: 5-6 charges more in one cycle than a covered lender may charge in interest for a whole month.

Lending companies must be registered with the SEC

The Lending Company Regulation Act (Republic Act No. 9474) says a lending company may be set up only as a corporation and cannot do business without an authority to operate from the SEC (Sec. 4), and puts lending companies under SEC supervision (Sec. 11). Engaging in the business of a lending company without that authority is punishable by a fine of ₱10,000 to ₱50,000, imprisonment of six months to ten years, or both (Sec. 12).

If someone lends to the public as a business and calls themselves a lending company or lending investor, you can ask for their SEC registration and authority to operate.

If you are the one lending

Put the amount, the due date and any interest in writing and get it signed. Without that, Article 1956 means you can ask for the principal but not the interest. For getting the money back, see how to collect utang.

This is not legal advice

This guide explains the general rules linked above. It is not legal advice for your situation, and whether a rate is unconscionable is for a court to decide on the facts. If you are being threatened or harassed over a debt, or the amount is large, talk to a lawyer or ask the Public Attorney’s Office whether you qualify for free help.