Is it legal for a loan app to deduct a processing fee before releasing my loan?
Last updated: 2026-07-11 · Educational content; not legal advice.
Short answer
A processing or service fee is not automatically illegal, but on a covered small loan it counts toward the 15% per month effective interest rate (EIR) ceiling — it cannot be used as a hidden extra to push your all-in cost above that cap under SEC MC 3, s. 2022 and BSP Circular 1133. It must also be disclosed in writing before you agree, under RA 3765 (Truth in Lending Act), and the disclosed loan amount should reflect what you actually receive. If an app advertises a ₱10,000 loan but releases only ₱7,000 after silent 'fees' while still charging interest on the full ₱10,000, that is an undisclosed finance charge you can dispute.
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Frequently asked
Can they deduct the fee from my release amount?
Deducting a disclosed fee up front is not by itself illegal, but the fee is part of the EIR on a covered loan, and RA 3765 requires it to be disclosed in writing before you agree. Interest should be computed on what you actually receive, not an inflated headline principal.
What if the fee was never disclosed?
An undisclosed finance charge breaches the Truth in Lending Act (RA 3765) and the SEC MC 19 (2019) disclosure rules. You can demand the disclosure, dispute the charge, and report the lender to the SEC's Financing and Lending Companies Department.
Do these fees count toward the caps?
Yes on covered loans. The 15% per month EIR ceiling expressly includes processing, service, notarial, handling, and verification fees, and everything except penalties also counts toward the 100% total-cost cap — see /answer/what-is-the-interest-rate-cap-on-online-loans-sec-mc-3-2022.
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