The real cost of online loans

Say you borrow 5,000 pesos for 30 days at 5% monthly interest. On paper that is 250 pesos. But if the lender deducts a 500-peso processing fee at release, you receive 4,500 and still repay 5,250. You paid 750 pesos to use 4,500 for one month, which is roughly 16.7% for the month, not 5%.

That gap is the whole point of computing the effective cost: measure the total you repay against the amount you actually received, over the actual number of days.

Start with the amount released to you after all deductions. Add every peso you will pay back: principal, interest, service or processing fees, and any insurance. The difference is your true cost of borrowing.

To compare loans of different lengths, convert to a monthly figure: divide the total cost by the amount received, then divide by the number of days and multiply by 30. Two loans that both advertise the same rate can be far apart once fees are in.

Our loan cost calculator does this for you, including fees and a late-payment scenario, so you can see the number before you commit.

Late fees on 7 to 14 day loans compound quickly relative to a small principal. A missed week on a 3,000-peso loan can add several hundred pesos, which then makes the next payment harder. This is the mechanism behind most debt spirals with app-based lending.

Before borrowing, check the penalty per day of delay and ask yourself what happens if payday moves by a week.

The SEC has imposed caps on interest, fees, and penalties for short-term, low-value unsecured consumer loans from lending and financing companies. If the numbers you are quoted sit far above those caps, that is a strong signal the lender is not operating legally, and worth checking against the SEC list before you accept.

Registration does not mean cheap. Even a registered lender can be expensive. Compute the cost, compare a few options, and only borrow the amount you can repay on the date you expect money to arrive.