When you shop for a loan, the interest rate gets all the attention — but the fees often decide which loan is actually cheaper. A loan with a lower headline rate but a big processing fee can cost you more than a higher-rate loan with no fee. Fees are part of the true cost, which is why they push up the effective annual rate (see what the EAR is).
The fees to watch for in Philippine loans:
• Processing / handling fee — often 3–5% of the amount, and frequently deducted upfront, so you receive less than you borrowed while still paying interest on the full amount.
• Documentary stamp tax (DST) and notarial fee — required to formalise the loan documents.
• Disbursement or release fee — charged just to release the money to you.
• Credit life insurance — sometimes bundled in or required, adding to the cost.
• Late-payment penalty and penalty interest — charged on top of your normal interest when you miss a due date.
• Pre-termination (early-payoff) fee — a penalty for paying the loan off ahead of schedule.
Upfront deductions are the sneakiest. Say you take a ₱100,000 loan with a 4% processing fee deducted at release: you actually receive only ₱96,000, but you still repay interest and principal on the full ₱100,000. Your real cost is higher than the quoted rate suggests, and the EAR reflects that gap.
A quick comparison shows why the rate alone can mislead. On ₱100,000 over 12 months: Loan A at a 1.2% monthly add-on with no fee costs ₱14,400 in interest. Loan B at a 'cheaper' 1.0% add-on costs ₱12,000 in interest — but with a ₱4,000 processing fee, its total cost is ₱16,000. The lower-rate loan is actually ₱1,600 more expensive.
Pre-termination penalties matter too. With an add-on loan the interest is pre-computed on the whole term, so paying early often doesn't save you the remaining interest — and a pre-termination fee can wipe out any benefit. Always ask how early payoff is treated before you sign.
How to protect yourself: under the BSP's Truth in Lending Act, the lender must give you a disclosure statement listing every finance charge and the effective interest rate before you sign — ask for it and read it. Two questions cut through the noise: 'How much will I actually receive?' and 'What is the total I'll repay, fees included?' Then compare offers by EAR in the loans table and estimate your payment with the loan calculator, not by the headline rate alone.