Truth in lending act – what borrowers need to know before taking a loan

Nicole Si
May 28, 2019
Truth in lending act – what borrowers need to know before taking a loan

With the help of technology, there are more and more digital lending companies sprouting in the Philippines offering different kinds of loan with competitive rates and terms. Applying for a loan in the comfort of your own home through an app is a big hit to many Filipinos. Despite the booming digital lending industry in the Philippines, some consider it risky and are hesitant to apply in this type of lending institutions. Fortunately, there is a law enforced by Bangko Sentral ng Pilipinas that can help those who are interested in applying for a loan, the Truth in Lending Act. Want to know more about this law? We’ve listed important parts of this law below.

The Truth in Lending Act is an act that requires lending institutions to disclose the finance charges regarding a loan. The purpose of this act is to protect Filipinos from a lack of awareness of the true cost of credit. By disclosing the cost of credit to borrowers, it aims to prevent uninformed use of credit.

Prior to the transaction of lending to the borrower, the creditor should show the borrower a clear written statement listing all the finance charges regarding his/her loan. The following information should be listed in the statement:

(1) the cash price or delivered price of the property or service to be acquired;
(2) the amounts, if any, to be credited as down payment and/or trade-in;
(3) the difference between the amounts set forth under clauses (1) and (2);
(4) the charges, individually itemized, which are paid or to be paid by such person in connection with the transaction but which are not incident to the extension of credit;
(5) the total amount to be financed;
(6) the finance charge expressed in terms of pesos and centavos; and
(7) the percentage that the finance bears to the total amount to be financed expressed as a simple annual rate on the outstanding unpaid balance of the obligation.

If the creditor fails to disclose the finance charges to the borrower, the borrower can file a case against the creditor. If proven guilty, the creditor can be fined by not less than P1,000 or more than P5,000 or can be imprisoned for not less than 6 months nor more than 1 year or both.

This act is a helpful guide to many Filipinos who are interested to apply for a loan in lending companies. Assessing your capability to pay off a loan is important before entering any loan agreement. We should always remember to read first whenever we sign an agreement regarding the loan that we applied for. Always check if you have all the information that you need before entering any loan agreement and that you fully agree to all the terms stated in the contract. Lastly, don’t forget to take note of your due date and the total repayment amount so you don’t have to pay a penalty fee and overdue interest if you forgot to repay your loan on time.

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