Legal Interest on Unpaid Debt in the Philippines: How Is It Computed?
Quick Answer: Interest on unpaid debt depends on its legal basis and time period. Conventional interest for the use of money must be expressly stipulated in writing under Article 1956. When interest is awarded as damages or after judgment, the rules summarized in Nacar v. Gallery Frames generally use 6% per annum under BSP Circular No. 799, subject to the obligation, demand, judgment and later jurisprudence.
Interest Decision Table
| Type | Basis | Starting point |
|---|---|---|
| Conventional interest | Written agreement | Contractual period |
| Interest as damages on a money loan | Articles 1169 and 2209 | Default after valid demand, unless excepted |
| Unliquidated non-loan damages | Court discretion and jurisprudence | When amount becomes reasonably certain or as adjudged |
| Post-judgment interest | Final award | Finality until satisfaction |
What Must Be Separated?
Keep principal, conventional interest, penalties, interest as damages and post-judgment interest in separate lines. Do not compound interest unless a valid legal basis exists. Article 2212 addresses interest due on interest from judicial demand, subject to the governing facts.
Evidence Checklist
- Signed loan or credit agreement
- Written interest and penalty clauses
- Release of principal and payment ledger
- Due dates, extensions and restructuring agreements
- Demand with proof of receipt
- Judgment date, finality date and payments afterward
Practical Steps
- Fix the principal and every payment date.
- Identify whether interest is contractual or damages.
- Test the written stipulation and rate for enforceability.
- Calculate by distinct legal periods.
- Credit payments using the application-of-payments rules.
Frequently Asked Questions
Is legal interest always 6%?
The 6% framework under Nacar v. Gallery Frames is widely applied after July 1, 2013, but the obligation, written agreement, demand, judgment and current jurisprudence determine the result.
Can oral interest be collected?
Article 1956 generally requires an express written stipulation for conventional interest.
Can interest exceed principal?
The amount alone is not the only test, but excessive or unconscionable rates may be reduced.
When does post-judgment interest stop?
Upon satisfaction of the final award, subject to lawful credits and computation.
Start with Unpaid Debt in the Philippines.
Primary Legal Sources
- Civil Code of the Philippines — Republic Act No. 386
- Nacar v. Gallery Frames — Supreme Court E-Library
Legal verification date: September 15, 2026. General legal information only.