Personal Loan Agreement (Philippines)

A Personal Loan Agreement in the Philippines records the terms of a loan between lender and borrower, fixing the amount advanced, the interest and the schedule for repayment.

The Truth in Lending Act (Republic Act No. 3765, 1963) and its implementing rules under Bangko Sentral ng Pilipinas Circular No. 730 (2011) require all lenders — including private individuals who regularly lend money — to disclose the true cost of the loan to the borrower before consummation. Mandatory disclosures include: the total amount of the loan, the finance charge expressed in Philippine pesos, the percentage rate of the finance charge per annum, and the total amount to be paid by the borrower. Failure to make these disclosures before loan delivery makes the lender liable to the borrower for twice the finance charge under Section 6 of RA 3765.

Interest on a personal loan in the Philippines is valid only if stipulated in writing under Article 1956 of the Civil Code. Without a written stipulation, no interest may be charged even if the parties verbally agreed to it. The Bangko Sentral ng Pilipinas, through BSP Circular No. 799 (2013), reduced the legal interest rate from 12% per annum to 6% per annum for loans and forbearance of money, effective July 1, 2013, applicable whenever courts award interest in the absence of a written stipulation.

The Supreme Court of the Philippines in Nacar v. Gallery Frames (G.R. No. 189871, August 13, 2013) established the rule that: (1) monetary obligations carry interest at the contractual rate stated in writing from due date until full payment; (2) if no written rate is stated, legal interest of 6% per annum applies from the date of judicial or extrajudicial demand; and (3) from the date any court decision becomes final and executory, the total adjudged amount earns 6% per annum until satisfaction. Courts have also struck down unconscionable interest rates — the Supreme Court in Medel v. Court of Appeals (G.R. No. 131622, November 27, 1998) voided a 5.5% monthly interest rate (66% per annum) as contrary to morals under Article 1306 of the Civil Code.

A Personal Loan Agreement in the Philippines that involves an amount of PHP 500 or more must be in writing to be enforceable in court under Article 1358 of the Civil Code on the requirement of form, read together with the Rules of Evidence. Documentary stamp tax under the National Internal Revenue Code (NIRC, RA 8424 as amended by RA 10963 TRAIN Law), Section 179, applies to loan instruments at PHP 1.00 for every PHP 200 of the loan face value, payable within 5 days after the close of the month of execution.

A Personal Loan Agreement in the Philippines is needed whenever one party lends money to another party outside of a formal banking channel, and both parties want a written record of the loan terms enforceable before Philippine courts.

A Personal Loan Agreement is needed when a private individual lends money to a friend, family member, or colleague and wants written documentation to avoid future disputes about the loan amount, interest, and repayment schedule. Without a written agreement, the lender must rely on witness testimony and other circumstantial evidence to prove the loan in court — a difficult burden under Rule 130 of the Rules of Court.

A Personal Loan Agreement is needed when an employer extends a salary loan to an employee and wants to set up authorized deductions from the employee's salary. Under Article 113(c) of the Labor Code, authorized deductions from wages require the employee's written consent, and a signed Personal Loan Agreement with an authorization to deduct clause satisfies this requirement.

A Personal Loan Agreement is needed when a small business owner borrows money from a private investor or family member as working capital, and wants to document the loan separately from equity investment to avoid future claims that the money was a capital contribution rather than a debt obligation.

A Personal Loan Agreement is needed for Bureau of Internal Revenue (BIR) purposes when a corporation lends money to an officer, director, or stockholder. Under Revenue Regulations No. 2-98, imputed interest income may apply if a related-party loan is made at below-market rates, and a written loan agreement establishes the terms.

A Personal Loan Agreement is needed as supporting documentation when a borrower applies for a Certificate of Tax Exemption from the BIR for interest income received by a qualified lender under the NIRC, or when the lender needs to establish the nature of repayment receipts as loan principal repayment (not taxable income) versus interest receipts (subject to 20% final withholding tax under NIRC Section 24(B)(1) for individuals).

A valid Personal Loan Agreement in the Philippines must contain the following essential elements to comply with the Civil Code, the Truth in Lending Act, and BSP disclosure requirements.

Party Identification: Full legal names of the lender and borrower, their residential or business addresses, and their Tax Identification Numbers (TIN). For corporate lenders, include the Securities and Exchange Commission (SEC) Registration Number. Accurate party identification prevents disputes about the identity of the obligor in collection proceedings before the Regional Trial Court.

Loan Amount and Disbursement: The principal amount in Philippine pesos (PHP ₱) stated numerically and in words, the mode of disbursement (cash, check, bank transfer to a specified BSP-regulated bank account), and the disbursement date. Article 1934 of the Civil Code provides that a simple loan is perfected only upon delivery of the money.

Interest Rate Disclosure: The annual interest rate expressed as a percentage per annum, stated explicitly in writing as required by Article 1956 of the Civil Code. Truth in Lending Act (RA 3765) disclosures must state the finance charge in pesos and the effective annual interest rate. Rates above 6% per annum must be expressly justified and must not be unconscionably high under Article 1306 of the Civil Code.

Repayment Schedule: The specific dates and amounts of each installment payment, the total number of installments, and the maturity date of the loan. A clear schedule prevents ambiguity about when the debt falls due for purposes of computing default interest and filing a collection case within the 10-year prescriptive period under Article 1144 of the Civil Code.

Default and Acceleration: An acceleration clause allowing the lender to declare the full outstanding balance immediately due and payable upon default, the grace period (if any) before default is triggered, the default interest rate or penalty charge expressed per annum, and the method for serving demand (written notice by registered mail or personal delivery).

Prepayment and Security: Whether the borrower may prepay without penalty, and whether any collateral (real property, personal property, suretyship) secures the loan. If real property is pledged as mortgage, a separate Deed of Real Estate Mortgage under Article 2124 of the Civil Code must be executed and registered with the Register of Deeds.

Documentary Stamp Tax Acknowledgment: A clause confirming that documentary stamp tax (DST) under NIRC Section 179 at PHP 1.00 per PHP 200 of face value will be paid by the designated party, and that the agreement is subject to applicable BIR regulations on loan instruments.

Governing Law and Dispute Resolution: A clause designating Philippine law as governing law and specifying whether disputes will be resolved through the courts of a specific city or through arbitration under the Alternative Dispute Resolution Act of 2004 (Republic Act No. 9285). The forms-legal.com Personal Loan Agreement (Philippines) template covers the mandatory elements under Civil Code of the Philippines (RA 386), Art. 1933.