Credit cardholders, brace yourselves: the Bangko Sentral ng Pilipinas (BSP) raised the maximum interest rate on unpaid outstanding credit card balances to 3% per month or 36% per year. The maximum processing fee for credit card cash advances remains at ₱200 per transaction.[1]
On top of rising inflation in the country, the higher cap on credit card interest rates and fees means another source of financial stress for Filipinos. If you're an existing cardholder, try to pay on time to avoid 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 the Finance Charge on a Credit Card?
The finance charge (sometimes referred to as the credit card interest rate) is the interest that banks make their customers pay for any unpaid balance carried over from the previous billing cycle.
If you pay 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 with less than or more than 30 days.
Note that you can still get charged with interest for certain credit card transactions even if you’ve already paid in full. Some of these transactions include 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 you should read your credit card provider’s terms and conditions to know for which transactions you’ll be charged interest.
How is Credit Card Interest Calculated in the Philippines?
To show you how to compute credit card interest rates in the Philippines, let’s use this example:
- Current statement date: February 1, 2023
- Next statement date: March 1, 2023
- Previous balance: ₱10,000
- Payment due date: February 21, 2023
- Payment date: February 21, 2023
- Amount paid: ₱5,000
Sample Credit Card Interest Computation
1. Add the number of days after your current statement date (February 2) to the day before your payment due date (February 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 (February 21) to your next statement date (March 1), which is a total of nine days. Deduct your payment from your previous balance and multiply it by 9.(₱10,000 - ₱5,000) x 9 days = ₱45,000
3. Add the number of days from your previous statement date (January 1) to your current statement date (February 1), which is 32 days.
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 (32 days).(₱190,000 + ₱45,000) / 32 days = ₱7,343.75
Your total credit card finance charge for your current statement date is ₱7,343.75 Multiply it by the monthly interest rate of 3%.
The total interest incurred for your current billing cycle is ₱220.31. Add your remaining balance of ₱5,000. The current charge you'll see on your next statement date is ₱5,220.31.
What is the Cap on Credit Card Interest Rates and Fees?
Last January 13, 2023, the BSP issued Circular No. 1165,[2] which set the maximum credit card interest rates and fees in the Philippines. All BSP-regulated banks were mandated to implement the new credit card interest rates in the Philippines 15 days after its publication.
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.
👉 3% Credit Card Interest Rate Cap
Under the BSP Circular, credit card providers can charge only up to 3% monthly finance charge (or 36% 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 credit card interest rate in the Philippines was 2% per month or 24% per year.
In addition to raising their credit card interest rate to 3%, 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 ₱200 per transaction. According to the BSP, no other charges should be collected on credit card cash advances except for that flat fee.
Updated Credit Card Interest Rates in the Philippines 2023
To comply with the BSP-mandated cap on interest rates and other fees, a few commercial banks in the Philippines have announced their respective new rates.
Below are the updated tables of fees and credit card interest rates in the Philippines for 2023. 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
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. But to avoid hefty charges due to credit card interest rates in the Philippines, 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 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 charges and credit card interest rates in the Philippines 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.
Related reading:
- Swipe and Save: 15 Credit Cards with No Interest in the Philippines
- Nothing Like Your First: Top 14 Credit Cards for Beginners
- Earning Below ₱20,000? Consider These Credit Cards for Low Income Earners in the Philippines
Final Thoughts
The higher cap on credit card interest rates in the Philippines can cause financial strain for most Filipinos. Combine these new rates with the constantly rising prices of goods in the country, and you've got the recipe for a mountain of credit card debt.
To maintain your good credit standing, avoid maxing out your limit, pay your bills in full and on time, and use your card responsibly.
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.
Sources:
- [1] Higher 3% cap on credit card transactions starts next month (Philstar, January 2023)
- [2] BSP Circular No. 1165
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