Art. 1175. Usurious transactions shall be governed by special laws.

Comment:

(1) Usury defined it is contracting for or receiving something in excess of the amount
allowed by law for the loan or use of money, goods, chattels, or credits. In other
words, usury is the exaction of excessive interest.

(2) Kinds of interest

(a) Interest given for compensation or use of the money (also called by some
authors as MORATORY INTERESTS).
Example: I borrowed P1 million at 8% interest per annum for 3 years.

(b) Interest given by way of damages (also referred to by some authors as

COMPENSATORY INTEREST)
Example: I borrowed P1 million with no interest for 3 years. If I pay at the end of
3 years, I pay no interest. If I incur default (do not pay even after demand), I will
now be responsible for interest (by way of damages) at the rate of 6% per
annum, to be counted from default.

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 (3) Definition of simple loan by the contract of simple loan, one of the parties delivers
to another money or other consumable things upon the condition that the same
amount of the same kind and quality shall be paid.
(4) Lawful & Legal Rates
Under the former Usury Law:

(a) Lawful rates (authorized rates) those allowed as maximum under the former
Usury Law.
(1) 12% per annnum if secured in whole or in part by a mortgage upon real
estate, if the title to the real estate is duly recorded; or by any document
conveying such real estate or an interest therein.
(2) 14% per annum if not secured as provided above
(3) For pawnshops:
2 % a month if sum lent is less than P100
2% per month P100 P500
14% per annum if more than P500
(b) Legal rate(that presumed by the law to have been agreed upon if the loan
mentions interest but no rate was stipulated)
This used to be 6% per annum (Art, 2209, Civil code; sec. 1, Act 2655). It
is now 12% per annum as directed by a Central Bank circular.

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