Are the fees on online payday / short-term loans legal?
Last updated: 2026-07-10 · Educational content; not legal advice.
Short answer
A short-term online loan's charges are legal only within the BSP caps for covered loans: BSP Circular 1133 (2021), extended by Circular 1165 (2023), limits a general-purpose unsecured loan of up to ₱10,000 with a tenor of 4 months or less to 6% nominal interest per month, a 15% all-in effective cost per month, and a 5%-per-month cap on penalties for late payment. A "processing fee" or "service fee" that pushes the true cost above those ceilings — or that was never disclosed as a finance charge under RA 3765 — is challengeable and refundable. LabanPH's APR calculator exposes the real all-in rate behind the fees.
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Frequently asked
Do the BSP ceilings cover every loan?
The Circular 1133 caps apply to unsecured, general-purpose loans of ₱10,000 or less with tenors of 4 months or less. Larger or longer loans are not under this hard cap, but their charges must still be fully disclosed (RA 3765) and can be voided if unconscionable (Civil Code Art. 1306, Medel v. CA).
They took the 'fee' out before releasing the loan — does that count?
Yes. A fee deducted up front is part of the finance charge and counts toward the effective-cost cap; deducting it while still charging interest on the full face amount inflates the true rate and must be disclosed under RA 3765.
The penalty for one late day was huge — is that allowed?
For covered loans, penalties are capped at 5% per month of the outstanding amount, within the 15%-per-month all-in effective ceiling. Penalties beyond that are challengeable before the SEC or BSP.
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