Staggering Interest In The Philippines

I just got my credit card statement for my Philippines issued credit card. I’ve been wondering what kind of interest rate they would charge me, I need wonder no more. It is only 3.5 %.  That sounds pretty good huh? Well that’s 3.5% per month not per year. Per year that works out to 39% interest! This came as no surprise to me. I had long ago learned how interest in the Philippines works. It is important for expat finances to understand how interest in the Philippines is presented.

Now, I’m recalling being a brand new to living in the Philippines and needing to furnish the home I’m renting. We took out quite a large loan in Jessie’s name. They wouldn’t put it in my name. I thought wow, only 5% interest. Then I looked at how much we had to pay back. The numbers didn’t compute at all. Not to my Western way of thinking.

I kept trying to figure out what was going on with it. I thought there must be a mistake in their math. I recall that it took me a day or more to find the “mistake.” The mistake was my assuming the interest rates in the Philippines were quoted the same way they are in the USA.

When an American sees an interest rate they think in terms of yearly but in the Philippines the stated interest rate is stated by month.  Perhaps because no one in their right mind would borrow anything at these interest rates.

Interest In The Philippines Is Stated In Monthly Terms

So finally I realized my 5% interest was really 60% per year! It wouldn’t have mattered, we needed air con and a ref. Probably didn’t need this now dead TV though. The little one still works. We also certainly need a few beds and I got a thicker mattress.  Still not up to American standards and probably needs to be replaced.  Then again, it didn’t cost at American standards either. Instead of $1000 it was about $200.

Maybe the rich expats that complain about high prices in the Philippines still buy their Western style beds and other furniture. Me, I found that was really excessive and unneeded.

Loans on housing are much shorter term here. Most of the ones I see are paid off in two years and I don’t think they carry the same excessively high interest that consumer credit does.

Don’t worry, I wont be running up a bill on my Philippines credit card that I can’t pay monthly or very nearly monthly. I intentionally left a small balance on the card so I could see what the actual interest rate would be.  It looks like they did some creative accounting when they charged me. I had a remaining balance of P2000 but was charged about P170.  Folks that’s not 3.5% that should have only been about P70. Perhaps there is some hidden fee too.  It isn’t a concern really.  Charges I made during last month have already been paid.

Expat banking in the Philippines requires caution. Not so much because your money isn’t safe. Stick with the large national banks and you are unlikely to have a problem. Like most everything in the Philippines you should not expect it to be like your homeland. Doing that could be an expensive lesson. Interest in the Philippines is the most obvious way to demonstrate this.

With my upcoming trip to Palawan, no telling what kind of damage I will do. Though I plan to use mostly cash. Probably entirely cash.  One never knows and it is nice to have a Philippines based credit card.  It provides me with extra flexibility. It also provides me with that high interest in the Philippines.

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