When I applied for my first personal loan more than a decade ago, I didn’t really understand how the interest worked. Like many Filipinos, I just needed the funds, signed the papers, and figured the bank would handle the numbers.
That decision ended up costing me more than I expected.
I later realized I had agreed to a repayment plan that nearly doubled the amount I borrowed. It was a painful learning experience—but one that eventually pushed me to help others avoid the same mistake.
If you’re planning to take out a loan or want to better understand the one you already have, this guide is for you. Let’s break down how loan interest and monthly payments are calculated in the Philippines—in a way that’s practical, human, and easy to follow.
It’s easy to get caught up in whether a monthly payment “fits your budget,” but here’s the thing: the same monthly payment can mean very different total loan costs depending on how interest is computed.
Learning how interest is calculated will help you:
At RFC, we understand that every borrower has different needs. That’s why we offer a wide variety of loan types for both personal and business use, along with cash loan options for urgent needs.
Loan amount: ₱10,000 – ₱3,000,000
Term: 3 to 36 months
Collateral: Optional, depending on loan type
Features:
– Fast approval process
– Flexible repayment terms
– Collateral needed for higher loan values
Accepted collateral: Real estate, vehicles, appliances, livestock, and even sea vessels
This method calculates interest based on the original loan amount, then spreads the total interest evenly across the loan term.
Example:
Borrow ₱100,000 at 12% annual interest for 12 months:
You’ll pay the same amount monthly, but the interest doesn’t decrease as you repay.
Interest is recalculated monthly based on your remaining balance. This means your monthly interest payments decrease over time.
It’s commonly used for housing or secured loans where principal repayment gradually reduces your total cost.
This method charges the same interest each month regardless of your loan balance. It’s rarely used by formal lenders and often results in higher overall cost.
| Loan Type | Best For | Amount Range | Repayment Term | Collateral |
|---|---|---|---|---|
| Business Loans | MSMEs, entrepreneurs | ₱10,000 – ₱3,000,000 | 3 to 36 months | Optional |
| Personal Loans | Employees, professionals | Varies by profile | Flexible | Required for high-value |
| Cash Loans | Urgent/emergency needs | Varies | Short-term | Yes (varied types) |
| Principal | Original loan amount |
| Interest Rate | Annual percentage charged on the loan |
| Loan Term | Loan repayment period |
| Add-On Rate | Fixed interest on original amount |
| Diminishing Balance | Interest based on current balance |
| Monthly Amortization | Fixed monthly payment |
| EIR | Effective Interest Rate – full cost of loan |
At Radiowealth Finance Company, we use the Add-On Interest Method for many loans. Here’s how you can compute your monthly dues using our official formula:
Formula:
Monthly Amortization = (Loan Amount + Interest) ÷ Loan Term
Interest = Loan Amount × Interest Rate × Loan Term (in years)
Step 1: ₱50,000 × 10% × (12 ÷ 12) = ₱5,000 interest
Step 2: ₱50,000 + ₱5,000 = ₱55,000
Step 3: ₱55,000 ÷ 12 = ₱4,583.33/month
Prefer automation? Try our RFC Loan Calculator.
Tip: Ask for the Effective Interest Rate (EIR) to understand your true cost of borrowing.
Understanding how loan interest works gives you more than just financial knowledge—it gives you control. By asking the right questions, comparing terms properly, and choosing the right lender, you protect your income and your future.
At Radiowealth Finance Company, we’re here to help you borrow better. Whether you’re growing a small business, managing an emergency, or investing in your family’s future, we provide clear, fast, and fair loan options built for real Filipinos.
Use our Loan Calculator or talk to one of our loan advisors today.
Radiowealth Finance Company Inc.
SEC Company Reg. No. AS9600005A
Certificate of Authority No. 173
The DMG Center, D.M. Guevara St.,
Mandaluyong City,1550
+63 961-136-1661
+63 919-914-9306
Join our mailing list
for news and updates*
© 2021 Radiowealth Finance Company. All Rights Reserved
