Everyone knows the importance of choosing the right personal loan. But aside from the lender's reputation, what else should you be looking into when comparing different personal loans in the Philippines?
You should understand how a personal loan is calculated. The interest and monthly payment are two critical factors that borrowers must consider before applying for a loan.
Of course, it helps to know how much it will cost you to borrow money from a certain lender, and whether you can afford the monthly payment or not.
How a Personal Loan is Calculated in the Philippines
A personal loan—or any type of loan for that matter—is calculated by computing the interest or monthly payments (also called amortization or installment) on the loan. What you should compute depends on the information you need.
For example, to find out how much it will cost you to borrow money from a certain lender, you should calculate the interest on the personal loan. The higher the interest you’ll pay, the more expensive borrowing becomes for you.
On the other hand, if you want to know whether you can afford to repay a loan every month, then you should look into the monthly payments. Learning how to compute the monthly amortization lets you know if your monthly budget can cover your loan repayments.
What is Interest on a Personal Loan?
Interest is a fee that the lender charges you for using its money. It’s what you pay back on the loan, usually every month, on top of the borrowed amount.
For the borrower, the interest is the cost of borrowing money. For the lender, it’s the profit it gets from granting the borrower a loan.
Before learning how personal loan interest is calculated, understand first the factors that affect how much interest you pay: principal, loan term, and interest rate.
- Loan principal is the amount you borrow from the lender. The higher your principal, the higher interest you’ll have to pay.
- Loan term or tenor is the length of time it will take you to fully repay your loan. It’s usually expressed in months or years. Longer terms lead to lower monthly payments but higher interest charges over the life of the loan. Shorter terms mean lower interest payments over time but higher monthly repayments.
- Interest rate is the percentage of the principal that the loan provider charges as interest to the borrower. The higher the rate, the higher the cost of borrowing is.
Read more: 15 Personal Loans with Low Interest Rate in the Philippines
How Interest is Calculated on a Personal Loan
The easy and precise way to compute an interest is to use an online loan calculator. But if you’d rather do it manually, here’s the formula[1] that shows how interest is calculated on a personal loan.
Interest = (Annual interest rate ÷ Number of payments) x Loan balance
How to Compute Monthly Loan Interest
- Divide the interest rate (expressed as a decimal) by the number of repayments you’ll make throughout the loan term. For example, if your loan term is two years and you’ll make monthly payments, divide the interest rate by 24.
- Multiply the result by the balance of the loan. For the first repayment, the loan balance is equal to the entire principal amount.
- The resulting number is the amount of interest you’ll pay for the current month.
Read more: Fund Your Next Big Purchase with the CBS Easi-Funds Personal Loan
Sample Personal Loan Interest Computation
For example, here’s how to compute loan interest if you’ll get a personal loan with the following features:
- Loan amount: ₱100,000
- Loan term: 24 months
- Interest rate: 10% per annum
Interest on a personal loan: (0.10 ÷ 24) x 100,000 = ₱416.67
This means that for the first month of repaying your loan, ₱416.67 is the amount of interest you’ll be paying.
Read more: CTBC Personal Loan Online Application: How to Apply for Salary Stretch Loan
What is the Monthly Amortization on a Personal Loan?
The monthly amortization on a loan (also called monthly payment or installment) is a set amount that the borrower is required to pay every month until the loan is paid off. Monthly payments cover the interest on the personal loan and the principal payment.
How to Compute Monthly Amortization in the Philippines
If you want to know how to get the monthly amortization on a loan, here’s the formula[2] you can use:
Monthly amortization = a ÷ {[(1 + r)^n]-1} ÷ [r(1+r)^n]
Using the same example above, here are the components of the monthly payment computation:
- a: Loan amount (₱100,000)
- r: Annual interest rate divided by 12 monthly payments per year (0.10 ÷ 12 = 0.0083)
- n: Total number of monthly payments (24)
Monthly loan amortization = 100,000 ÷ {[(1 + 0.0083)^24]-1} ÷ [0.0083(1+0.0083)^24]
Don’t want to bother calculating the monthly payment by hand? Computing the monthly payment on a loan is complicated for anyone who’s not a math whiz. Save time and your sanity by using a personal loan calculator.
Guide to Using a Personal Loan Calculator in the Philippines
When you’re looking for a personal loan in the Philippines, an extremely helpful and convenient tool to use is a loan calculator. It automatically estimates the monthly payments on a loan based on the information you key in. This way, a personal loan calculator also helps you make important decisions before you apply for a loan.
How Loan Calculators Work
Loan calculators in the Philippines, which you can find on the websites of lenders, allow you to check how much you can borrow based on your monthly income or how much you’re going to pay off monthly based on your chosen loan amount and term.
Using a loan calculator is easy and quick—you just enter information such as the amount you want to borrow and your preferred repayment term, and the calculator automatically computes the amount you need to pay every month or the maximum amount you can borrow.
How to Use a Personal Loan Calculator
Want to know how to compute the monthly loan amortization? Simply go to the lender's website and look for its loan calculator. Computing your monthly repayments using a personal loan calculator is a straightforward process.
- Enter your preferred loan amount. Be sure that it’s within the loan amount range offered by the bank or lending company.
- Choose a payment term (the number of months you can pay off your personal loan).
- Click Submit, Compute, or Calculate to generate the monthly amortization.
Now let's explore the personal loan calculators made available online by some of the top providers in the Philippines.
📌 How a Metrobank Personal Loan is Calculated
If you'll get a personal loan from Metrobank, it's easy to know how much monthly amortization you're going to pay through the bank's straightforward online loan calculator.
How to Use the Metrobank Personal Loan Calculator
- Go to Metrobank's personal loan page.[3]
- Type your desired loan amount (minimum of ₱20,000; maximum of ₱1,000,000).
- Select your preferred loan term in the dropdown. The online calculator will automatically generate the monthly add-on rate based on your chosen loan amount and term.
- Click the Compute button and view the results on the right panel. It will show you the monthly amortization estimate and total fees. Click the dropdown to see the breakdown of fees.
📌 How a BPI Personal Loan is Calculated
BPI makes it simple and straightforward for potential borrowers to compute how much they'll repay monthly on a BPI personal loan.
How to Use the BPI Loan Calculator
- Access the BPI Loan Calculator[4] on the BPI Personal Loan website.
- Enter your desired loan amount.
- Click the Compute button.
- The BPI online loan calculator will show the monthly installment amount per loan term. View the table containing the estimated monthly payments for your selected loan amount.
📌 How an RFC Personal Loan is Calculated
Radiowealth Finance Company (RFC) is a seasoned non-bank financial institution operating for 55 years. It offers its products to individuals and businesses and has 10 offices across the country.
How to Use the RFC Personal Loan Calculator
If you want to apply for an RFC loan, know how the loan is computed by following the instructions below.
- Go to the RFC Loan Calculator[5] to check the estimate of your monthly payment.
- Slide from left to right and choose the amount you need to borrow.
- Choose the preferred payment term, and the calculator will show you the estimated monthly payment and total payback of your loan.
📌 How a Tala Personal Loan is Calculated
If you need cash on the go, Tala can be your lifesaver. You can borrow up to ₱15,000 and get approved as fast as 24 hours. Apply for a Tala Personal Loan directly on your Android device.
- Download the Tala app from the Google Play Store. From the app itself, you can apply and go through the verification process.
- Choose your due date, fill in the loan amount, and just slide from left to right to choose the number of days for the loan term.
📌 How an SB Finance Personal Loan is Calculated
If you’re looking for another credible and reliable lending firm, you may want to check SB Finance, which is a subsidiary of Security Bank Corporation and has a strategic partnership with Thailand-based Bank of Ayudha.
To use its personal loan calculator, here are the steps:
- Visit SB Finance website[6] and go to the Personal Loans page to view the loan calculator.
- Fill in the amount under the I want to borrow field.
- Choose the payment terms from the drop-down menu (from 12 to 36 months). The interest rate per month is fixed at 2%.
- Click the Calculate Now button to see the results.
Related article: Zuki by SB Finance: How to Get a Loan in Just a Few Taps
What is a Good Interest Rate on Personal Loans in the Philippines?
With all the loan interest and amortization computations to do on the banks and lending firms mentioned above, the biggest question now is: what is a good interest rate on a personal loan?
Average Interest Rate on Personal Loans in the Philippines
The Bangko Sentral ng Pilipinas (BSP) raised its key policy interest rate to 6.25% effective March 24, 2023.[7] This has set the interest rates on lending facilities to 6.75%.
On the other hand, the Securities and Exchange Commission (SEC) also set a cap on the interest rate of lending companies and other non-bank institutions—up to 6% per month (nominal interest rate) or about 0.6% per day effective March 3, 2022.[8]
The effective interest rate (EIR) per month is fixed at 15% or 0.5% per day on unsecured and short-term loans amounting to ₱10,000 with a loan tenor of four months.
Understanding the Annual Percentage Rate (APR)
The annual percentage rate (APR) is the cost of borrowing money for one year, expressed as a percentage of the total loan amount. This includes the interest rate, fees, and other financial charges. These incurred charges are usually used for loan processing.[9]
The APR is the most important consideration when comparing personal loan offers, as it will determine how much you'll end up paying in interest over the life of the loan. In general, the lower the APR, the better.
If you want to know the actual cost of your credit or loan that you're paying throughout the year, you should compare the APRs of personal loans.
What Other Factors Affect the Interest Rate of Your Loan?
When you're shopping around for a loan, you'll notice that interest rates vary greatly from lender to lender. But what determines the interest rate you'll ultimately be offered?
Here are some other important factors that impact the interest rate of your loan.
👉 Your Credit History
Lenders and banks will check your credit history to gauge how likely you'll repay your loan. If you’re consistent in paying your loan amortizations, you may be offered a lower interest rate. This principle also applies to other types of loans, like auto loans and housing loans.
👉 Employment History
Your employment history is another important factor because it indicates to lenders whether you have a steady income to make loan payments. If you have a long employment history with no gaps, you’re seen as a lower-risk borrower and will likely qualify for a better interest rate.
👉 Income
Your monthly income is also an important factor because it shows lenders how much money you have coming in each month to make your loan payments. The more income you have, the lower your risk of defaulting on the loan, and the lower your interest rate will be.
Final Thoughts
As you can see, it's easy to understand how a personal loan is calculated. The same holds true when computing the interest and monthly amortization on a personal loan. You have the bank's online loan calculator at your disposal.
However, note that results from online personal calculators should be taken as estimates only. The actual computation and final loan amount will be provided by the lender when you get approved for a personal loan.
Get a Personal Loan Through Moneymax Today!
Finding the right loan for any purpose can be a hassle-free experience when you use an online comparison platform like Moneymax. Shopping around for options? Check out these recommended personal loans in the Philippines.
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Metrobank
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Sources:
- [1] Calculate interest on loan (Mozo, 2022)
- [2] How to Calculate Monthly Payments for Loans (The Balance, 2022)
- [3] Metrobank Personal Loan Calculator
- [4] BPI Personal Loan Calculator
- [5] RFC Loan Calculator
- [6] SB Finance Personal Loan Calculator
- [7] Monetary Board Raises Policy Rate by 25 Basis Points (BSP, 2023)
- [8] SEC caps interest rates imposed by lending firms (The Philippine Star, 2022)
- [9] Annual Percentage Rate (APR): What It Means and How It Works (Investopedia, 2023)
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