Philippines Interest Rates

I have been looking into buying a car and/or a motorcycle here and I in doing so I have investigated available financing options. For automobiles the standard rate is called “12%, but it’s really not 12%.

If I borrowed PHP 100,000 at 12% annual interest, then in one year I would make a single payment of PHP 112,000. That would be 12%. However, in The Philippines, you are required to payback PHP 112,000 in twelve monthly installments, or 12 payments of PHP 9333.33. That comes out to an annual interest rate of 21.457%.

I used this online interest rate calculator.

Motorcycle dealers want what they call “20%” interest. That is, if I borrow PHP 100,000, they want me to repay PHP 120,000 in 12 installments of PHP 10,000 each, That comes to an actual annual interest rate of 35.0743.

I’m not sure why the interest rates are so high here, or why the rates are quoted as they are, but one thing I am sure of, such high interest rates will keep this country always a “developing nation”.

***Disclaimer: The high interest rates are much more likely to be a symptom of the problem rather than the cause.

This entry was posted on Wednesday, March 28th, 2007 at 09:57 and is filed under Musings, Philippines Expat Life, Travel. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.