Here's a great reason to get a credit card this year: The Bangko Sentral ng Pilipinas (BSP) has kept the maximum interest rate on unpaid outstanding credit card balances at 2% per month or 24% per year, while the maximum processing fee for credit card cash advances will remain at ₱200 per transaction.[1]
The cap on credit card interest rates and fees will give Filipinos a reprieve from financial difficulties during these challenging times. If you're an existing cardholder, it's a good opportunity to pay down your credit card debt.
Whether you're planning to apply for a new credit card or you're currently carrying one, here's what you should know about the newly imposed restrictions on credit card interest rates in the Philippines.
What is a Credit Card Interest Rate?
The credit card interest rate is what credit card providers charge you for the privilege of borrowing money.[2] If you paid less than your monthly due amount, your credit card company would charge interest on the unpaid balance. You’ll incur interest until you fully pay off your credit card’s outstanding balance.
Credit card providers in the Philippines compute interest rates based on a 30-day period. The interest rate will decrease or increase accordingly for months that have less than or more than 30 days.
Note that credit card transactions can still be charged interest even if you’ve already paid in full. Some of these are cash advances and quasi-cash transactions (foreign currency or items that can be converted to cash like lottery tickets, money orders, gaming chips, etc.). That’s why it’s important to read your credit card provider’s terms and conditions to know which transactions you’ll be charged interest in.
How to Compute Credit Card Interest
To show you how to compute the interest of your credit card, let’s use this example:
- Current statement date: July 1, 2022
- Next statement date: August 1, 2022
- Previous balance: ₱10,000
- Payment due date: July 21, 2022
- Payment date: July 21, 2022
- Payment amount: ₱5,000
Sample Credit Card Interest Computation
1. Add the number of days after your current statement date (July 2) to the day before your payment due date (July 20). That's a total of 19 days.
Next, multiply your previous balance by 19 days.₱10,000 x 19 days = ₱190,000
2. Add the number of days from your payment due date (July 21) to your next statement date (August 1), which is a total of 12 days. Deduct your payment from your previous balance and multiply it by 12.₱10,000 - ₱5,000 x 12 days = ₱60,000
3. Add the number of days from your previous statement date (June 1) to your current statement date (July 1), which is 30 days.
And then add the balances from the two previous steps and divide them by the number of days from the previous to the current statement date (30 days).₱190,000 + ₱60,000 / 30 days = ₱8,333.33
Your total finance charge for your current statement date is ₱8,333.33. Multiply it by the monthly interest rate of 2%.
The total interest incurred for your current billing cycle is ₱166.66. Add your remaining balance of ₱5,000. The current charge you'll see on your next statement date is ₱5,166.66.
What is the Cap on Credit Card Interest Rates and Fees?
The BSP issued Circular No. 1098,[3] which sets the maximum credit card interest rates and fees in the Philippines. All BSP-regulated banks are mandated to implement the new rates starting November 3, 2020.
The cap on credit card interest rates and other fees will be reviewed by the BSP every six months. So expect that the figures might change depending on the country's current economic condition.
2% Credit Card Interest Rate Cap
Under the BSP Circular, credit card providers can charge only up to 2% monthly finance charge (or 24% annual interest rate) on the cardholder's unpaid outstanding balance. The credit card interest rate cap applies to straight payments and cash advances.
Previously, the average interest of credit cards in the Philippines was 3.50% per month or 42% per year. With the BSP-imposed limit, credit card interest rates have decreased by around 1.50 percentage points monthly or 18 percentage points yearly.
In addition to lowering their credit card interest rate to 2%, banks are also required to share with their clients a detailed yet simple, easy-to-understand explanation of how they compute their fees and charges.
1% Credit Card Installment Rate Cap
A separate interest rate cap will be charged on installment plans, including balance transfer and balance conversion. For such installment payments, banks can charge only up to a 1% monthly add-on rate.
₱200 Credit Card Cash Advance Fee Cap
When you make a cash advance, you'll be charged a fixed fee of only up to PHP 200 per transaction. According to the BSP, no other charges should be collected on credit card cash advances except for that flat fee.
Updated Interest of Credit Cards in the Philippines 2022
Complying with the BSP-mandated cap on interest rates and other fees, most commercial banks in the Philippines have announced their respective new rates.
Some banks increased their late payment and overlimit fees, apparently to offset lost opportunity costs due to the compulsory lower interest rates.
Below are the updated tables of fees and interest of credit cards in the Philippines,[4] at least for 2022. Credit card fees that are not included in the tables remain the same.
AUB Credit Card Interest Rates and Fees
Related article: Credit Cards with No Annual Fees in the Philippines
Bank of Commerce Credit Card Interest Rates and Fees
BPI Credit Card Interest Rates and Fees
China Bank Credit Card Interest Rates and Fees
Citibank Credit Card Interest Rates and Fees
Note: These products are sold by Union Bank of the Philippines, using certain trademarks temporarily under license from Citigroup Inc. and related group entities.
EastWest Credit Card Interest Rates and Fees
HSBC Credit Card Interest Rates and Fees
Maybank Credit Card Interest Rates and Fees
Metrobank Credit Card Interest Rates and Fees
RCBC Credit Card Interest Rates and Fees
Robinsons Bank Credit Card Interest Rates and Fees
Security Bank Credit Card Interest Rates and Fees
UnionBank Credit Card Interest Rates and Fees
Read more: What You Need to Know About UnionBank Credit Card Fees
5 Tips to Avoid Being Charged a Credit Card Interest Rate
Given the option to pay something in full or in several smaller payments, the latter sounds more appealing, especially if the item has a high price tag. To avoid hefty credit card charges in the Philippines, you must keep the following tips in mind.
1. Pay Your Credit Card in Full
One of the perks of owning a credit card is the convenience of paying for purchases over a period of time. But if you carry your credit card balance from month to month, you end up paying more. You’ll accumulate interest charges until you fully pay off your credit card balance.
Pay off your credit card in full, so you won’t have to carry the balance to the next month. And while you haven’t fully settled your outstanding balance, try not to make any more credit card purchases to reduce the amount you owe.
2. Pay More Than Your Minimum Amount Due
If you pay more than the minimum amount due, you’re also decreasing the interest you’ll need to pay in the longer term. Also, your credit card won't be maxed out, improving your credit utilization ratio.
3. Read Your Credit Card’s Terms and Conditions
Before you swipe, make sure you understand how your credit card issuer will charge you for a particular purchase or transaction. The terms and conditions will fully explain how your credit card balance will be calculated and what the interest rates and charges are.
4. Avoid Making a Cash Advance
A cash advance isn’t the same as a cash withdrawal from an ATM. The moment you make a cash advance on your credit card, the interest starts adding up. Avoid borrowing from your credit card limit unless it’s a real emergency, and you can pay the amount ASAP.
5. Reduce Your Credit Card Balance
If your current financial situation doesn’t allow you to fully pay off your credit card, reduce your credit card balance at least. Pay it down to avoid hefty interest. More importantly, resist the temptation of making new credit card purchases for now if you can’t pay them in full.
Final Thoughts
The credit card interest rate cap is a big help for cardholders in the Philippines during this difficult time. It will allow you to pay off your credit card fast and borrow cash using your card at a cheaper cost for a financial emergency.
If you don’t own a credit card yet, do a credit card comparison in the
Philippines to find the best credit cards and which offers the lowest credit card interest rate.
To get the most benefits of a lower interest of credit cards, maintain your good credit standing—avoid maxing out your limit, pay your bills in full and on time, and use your card responsibly.
Sources:
- [1] Central bank keeps cap on credit card charges (BusinessWorld, June 2022)
- [2] Understanding Credit Card Interest (Investopedia)
- [3] BSP Circular No. 1098
- [4] Comparative Table of Credit Card Interest Rates from BSP
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