Can an online lender charge late penalties on top of interest?
Last updated: 2026-07-11 · Educational content; not legal advice.
Short answer
A lender can charge a late-payment penalty in addition to interest, but on a covered small loan (unsecured, ₱10,000 or less, term up to 4 months) the penalty is capped at 5% per month on the outstanding scheduled amount due under SEC MC 3, s. 2022 and BSP Circular 1133 — and once your interest, fees, and penalties together reach 100% of what you borrowed, nothing more can be charged. Penalties are separate from the 15% per month effective-interest ceiling (which covers interest and fees, not penalties), so a lender cannot dodge the interest cap by relabelling interest as a 'penalty'. Charges beyond these ceilings on a covered loan are a documentable violation.
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Frequently asked
How much can the penalty be?
On a covered loan, the late-payment or non-payment penalty is capped at 5% per month on the outstanding scheduled amount due (SEC MC 3, 2022 / BSP Circular 1133). This is a separate ceiling from interest, but it still counts toward the overall 100% total-cost cap.
Can penalties keep piling up forever?
No. Once total interest, fees, charges, and penalties reach 100% of the amount borrowed on a covered loan, no further charges are allowed — the cap applies regardless of how long the loan is outstanding, so runaway daily penalties are illegal.
Is compounding penalties on penalties allowed?
Charging interest or penalties on already-accrued penalties raises the same unconscionability and compounding issues courts have curbed. See /answer/can-a-lender-charge-interest-on-interest-in-the-philippines — Article 1959 of the Civil Code limits compounding without a written stipulation.
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