How to Compute Loan Interest and Monthly Amortization in the Philippines

Venus Zoleta

Venus Zoleta

Last updated August 01, 2022

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

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 for 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?

how a personal loan is calculated - how to compute interest

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 they get from granting the borrower a loan.

Before learning how personal loan interest is calculated, it’s important to 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: 13 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 a 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

  1. 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.
  2. Multiply the result by the balance of the loan. For the first repayment, the loan balance is equal to the entire principal amount.
  3. The resulting number is the amount of interest you’ll pay for the current month.

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.

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

how a personal loan is calculated - monthly payment computation

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.

Personal loan in the Philippines

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 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.

  1. Enter your preferred loan amount. Be sure that it’s within the loan amount range offered by the bank or lending company.
  2. Choose a payment term (the number of months you can pay off your personal loan).
  3. 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 Citi Personal Loan is Calculated

how personal loan is calculated - Citi Personal Loan calculator

Considering getting a loan from Citibank? It's easy to know how much you'll be paying per month on a Citi personal loan.

How to Use the Citi Personal Loan Calculator

  1. Access the Citi Personal Loan page[3] on the Citi Philippines website.
  2. Scroll down the page until you see the "Personal Loan Repayment Calculator."
  3. Move the slider to your desired loan amount.
  4. View the results under "Available repayment plans." The online calculator will show the monthly amortization per loan term (12 to 60 months).
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Note: This product is sold by Union Bank of the Philippines, using certain trademarks temporarily under license from Citigroup Inc. and related group entities.

How a BPI Personal Loan is Calculated

how personal loan is calculated - BPI Personal Loan Calculator

Like Citibank, 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

  1. Access the BPI Loan Calculator[4] on the BPI Personal Loan website.
  2. Select or type your desired loan amount.
  3. Click the Submit button.
  4. 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

how a personal loan is calculated - RFC loan

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. 

  1. Go to the RFC Loan Calculator[5] to check the estimate of your monthly payment. 
  2. Slide from left to right and choose the amount you need to borrow. 
  3. 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.

  1. Download the Tala app from the Google Play Store. From the app itself, you can apply and go through the verification process. 
  2. 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 a Security Bank Personal Loan is Calculated

how personal loan is calculated - Security Bank Personal Loan Calculator

Security Bank allows anyone interested in a personal loan to easily compute the monthly payments on a personal loan.

How to Use the Security Bank Personal Loan Calculator

  1. Go to Security Bank's Personal Loan page[6] on its website.
  2. Scroll down to the Personal Loan Calculator.
  3. Enter the amount you want to borrow.
  4. Select your desired loan term from the dropdown menu.
  5. Enter your gross monthly income.
  6. Click the Calculate button.
  7. View the monthly installment under "Your Computed Result."

How an SB Finance Personal Loan is Calculated

how a personal loan is calculated - SB Finance

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 also has a strategic partnership with Thailand-based Bank of Ayudha. To use its personal loan calculator, here are the steps:

  1. Visit SB Finance website[7] and go to the Personal Loans page to view the loan calculator. 
  2. The minimum amount you can borrow for a personal loan is ₱200,000. Fill in the amount under the ‘I want to borrow’ field. 
  3. Choose the payment terms from the drop-down menu (from 12 to 36 months). The interest rate per month is fixed at 1.89%.
  4. Click the Calculate Now button to see the results. 

How an EastWest Bank Personal Loan is Calculated

how a personal loan is calculated - eastwest bank

EastWest Bank offers personal loans for travel, emergencies, and other major expenses. Borrow as much as ₱2 million with affordable payment terms of up to 36 months. You can even apply for a loan online.

How to Use the EastWest Bank Personal Loan Calculator

Just follow the steps below on how to use EastWest Bank's personal loan calculator.

  1. Go to EastWest Bank's personal loan website[8] and click on "Try Our Loan Calculator." 
  2. A pop-up box will ask if you’re an existing credit cardholder for the past 12 months. Answer Yes or No, and then supply the loan amount you want to borrow. 
  3. The online calculator will show you the estimated monthly installment you need to pay according to the payment terms as you fill in the loan amount. 

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 has maintained its key policy interest rate at 2%.[9] This means that the cost of borrowing money from banks is low, which makes it more affordable for Filipinos when applying for personal loans. Therefore, the good interest rate is less than 2% when borrowing money from banks. 

On the other hand, if you’re borrowing money from lending firms and other financial institutions, the BSP has also set a cap on the interest rate— up to 6% per month (nominal interest rate) at a maximum or about 0.6% per day.[10] 

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.  

The Security and Exchange Commission has already issued a memorandum about implementing the capped interest rates and other fees for lending firms. 

Understanding the Annual Percentage Rate (APR)

Investopedia defines Annual Percentage Rate (APR) as 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. 

The APR is the most important factor to consider 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 APR of personal loans.

What Other Factors Affect the Interest Rate of Your Loan? 

how a personal loan is calculated - other factors affecting interest rate of 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 with 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.

Personal Loan Provider Features
Citibank Personal Loan
Get a Citibank Personal Loan with Moneymax
  • Fast approval time in as fast as 24 hours
  • Loan amount of up to ₱2 million
  • Flexible payment terms of up to five years
EasyRFC Multi-Purpose Loan
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  • Fast approval time in as fast as 24 hours
  • High loan amount of up to ₱3 million
  • Payment term of up to 12 months
SB Finance Personal Loan
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  • Get approved within five banking days
  • High loan amount of up to ₱2 million
  • Flexible payment terms of up to 36 months
TALA Personal Loan
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  • Fast approval time in as fast as 24 hours
  • Quick cash loan up to ₱15,000
  • 24/7 application using an Android phone

Sources:

 

Venus leads the blog content strategy and optimization at Moneymax as the Head of Editorial Content. She has 15+ years of experience in content marketing, corporate communications, and public relations. Venus graduated cum laude with a Journalism degree from the University of the Philippines Diliman. Before joining Moneymax, Venus had written informative guides and articles, specializing in personal finance and digital marketing. She also invests in stocks, mutual funds, VUL, and Pag-IBIG MP2. A hardcore Hallyu Tita, she enjoys bingeing K-dramas on Netflix while bonding with her rescued cats. Follow Venus on LinkedIn.