Loan Agreement Philippines — Guide & vs Promissory Note

What Is a Loan Agreement?

A loan agreement (or loan contract) documents what the Civil Code calls a mutuum — a simple loan of money. The lender delivers a sum to the borrower, and the borrower is bound to repay the same amount, usually with interest, on the agreed schedule. It is a bilateral contract: both lender and borrower sign, and it spells out the principal, interest, payment schedule, default consequences, and any collateral or co-maker.

Filipinos searching for a loan agreement template are usually documenting a pautang — a personal or small-business loan between people who know each other. That is exactly the situation where a written, signed document matters most.

Loan Agreement vs. Promissory Note — Which One Do You Need?

Here is the honest answer: they document the same debt, in two different forms.

A loan agreement is a two-party contract, signed by lender and borrower, often with fuller representations and covenants — the form banks and lending companies use.
A promissory note is the borrower's unilateral promise to pay a fixed sum — signed by the borrower (and any co-maker), shorter, and fully enforceable as proof of the obligation.

For private lending — personal loans, employee loans, supplier credit, pautang between relatives — a well-drafted promissory note that states the principal, the written interest rate, the payment schedule, a penalty/default clause, and an acceleration clause does everything a loan agreement would do, with less friction at signing. This is the use case Legalia's Promissory Note generator covers, including a collateral recital and a co-maker where needed. If you need a heavily negotiated bilateral facility — multiple drawdowns, covenants, conditions precedent — that is bank-lawyer territory rather than a template.

The Rules That Actually Decide Loan Disputes

Interest must be stipulated in writing (Art. 1956, Civil Code). No written stipulation, no conventional interest — the lender recovers only the principal. This is the most litigated point in informal lending, and a written note settles it.
Unconscionable interest gets struck down. The Usury Law ceilings are suspended, but courts routinely reduce rates around 3% per month and above. Staying within 1–2% monthly keeps the stipulation defensible.
A penalty clause needs its own stipulation. Default interest or a penalty charge on missed payments must also be in writing — and is likewise subject to reduction if iniquitous.
Demand starts the clock. Unless the note fixes a maturity date or waives demand, the borrower is in delay only after a demand — pair your note with a collection demand letter when payment stalls.

Generate Your Loan Document with a Pro Plan

Legalia's Promissory Note generator produces a notary-ready note with the written interest stipulation, payment schedule, penalty and acceleration clauses, optional collateral recital, and co-maker — the document that makes a Philippine loan enforceable.

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See the full free Promissory Note sample and guide →

Already Lent Without a Document?

If the money has already changed hands with nothing in writing, have the borrower execute an Acknowledgment of Debt — a notarial instrument in which the debtor formally admits the obligation and commits to a payment schedule. It converts an undocumented utang into written, signed proof.

Frequently Asked Questions

What is a Loan Agreement in the Philippines?

A loan agreement documents a contract of loan (mutuum) under the Civil Code: the lender delivers money to the borrower, who is bound to repay the same amount, usually with interest, on agreed terms. It is a bilateral contract signed by both lender and borrower and typically covers the principal, interest, payment schedule, default consequences, and any security.

Is a Loan Agreement the same as a Promissory Note?

They document the same debt but are not technically the same instrument. A loan agreement is a two-party contract signed by both lender and borrower, with fuller terms. A promissory note is the borrower's unilateral written promise to pay a fixed sum — shorter, signed by the borrower (and any co-maker), and just as enforceable as proof of the obligation. For most personal and small-business loans in the Philippines, a well-drafted promissory note with interest, schedule, and default terms does the entire job of a loan agreement, which is the approach Legalia's Promissory Note generator takes.

Does interest on a loan have to be in writing?

Yes. Under Article 1956 of the Civil Code, no interest is due unless it has been expressly stipulated in writing. A verbal agreement to pay interest is unenforceable — the lender can recover only the principal. This is the single biggest reason to put any loan, even between friends or relatives, in a signed written document.

Is there a maximum legal interest rate in the Philippines?

The Usury Law ceilings have been suspended, so parties may agree on the rate — but courts strike down unconscionable rates. Philippine jurisprudence has repeatedly reduced rates in the range of 3% per month and above to legal interest. A monthly rate of 1% to 2% is the commonly accepted commercial range for private loans.

Does a loan document need to be notarized?

Not for validity — a signed private loan document is binding and enforceable. Notarizing it converts it into a public document with stronger evidentiary weight and a fixed date, which matters if the debt is later disputed or collected through the courts. For substantial amounts, notarization is worth the small fee.

Loan Agreement Philippines: What You Need & When a Promissory Note Is Enough