1. Effective Interest Rate (EIR)

Every loan you check gets reduced to one number: how much extra you're paying, expressed as a yearly rate. We take the total you'll repay, subtract the amount you borrowed to get the total interest, then annualize it based on how many payment periods fall in a year for your chosen frequency (365 for daily, 52 for weekly, 24 for twice-a-month, 12 for monthly).

EIR = (Total Interest ÷ Principal ÷ Years) × 100

This is the same effective-annual-rate concept explained in our article on Effective Interest Rate — it's what lets you fairly compare a "5% a week" loan against a "2% a month" one.

2. The Favorable / Caution / Risky verdict

Once we have the EIR, we classify it against general reference points for interest rates in the Philippines:

  • Favorable — EIR of 20% per year or less. Similar to a normal bank or cooperative rate.
  • Caution — EIR between 20% and 36% per year. In credit-card interest territory, higher than a typical bank loan.
  • Risky — EIR above 36% per year. Extremely high, comparable to a "5-6" or other expensive informal loan.

These bands are a general-education reference, not a legal ceiling or a guarantee that a specific lender's rate is or isn't compliant with any regulation.

3. The Hatol (debt-to-income verdict)

If you've logged at least one income entry in the Income/Debt Tracker, the calculator shows a second verdict — the Hatol — based on your debt-to-income ratio (DTI):

DTI = (Existing monthly debt + this loan's monthly-equivalent payment) ÷ Monthly income × 100

To get "monthly-equivalent" figures from entries that are daily, weekly, or twice-a-month, we convert using the average number of those periods in a month (365÷12 for daily, 52÷12 for weekly, 2 for twice-a-month, 1 for monthly), then sum across every entry in your Tracker.

The five Hatol bands:

  • You Can Afford It — DTI of 20% or less.
  • Think It Over Carefully — DTI between 20% and 35%.
  • Challenging Days Ahead — DTI between 35% and 50%.
  • You're in Deep Financial Trouble — DTI between 50% and 70%.
  • You Will Be Filing for Bankruptcy — DTI above 70%.

These bands follow the same debt-to-income framework explained in our article How to Tell If Your Debt Is Already Too Much for Your Salary, which itself references the 35% payment-to-income benchmark used for Pag-IBIG Fund housing loans as a real-world reference point.

4. What these numbers assume

All figures assume no additional fees (processing fee, insurance, notarial fee, etc.) are deducted from your loan proceeds. If a lender charges fees upfront, your actual borrowing cost will be higher than what the calculator shows. The Tracker's monthly-equivalent conversions are estimates based on the frequency you select for each entry — they don't account for irregular income or one-time expenses.

5. What this isn't

Every number on this site is a starting estimate for education only, not official financial or legal advice, and not a substitute for speaking with an accredited lender, financial advisor, or lawyer about your specific situation. See our Terms of Use for the full disclaimer.