BSP extends salary loan repayment period to 7 years

MANILA, Philippines – The Bangko Sentral ng Pilipinas (BSP) has extended the repayment term limit for salary loans in a move aimed at making consumer credit more manageable without encouraging excessive borrowing.

Under Circular No. 1239, which amends regulations on salary-based general-purpose consumption loans, the BSP said the maximum allowable repayment period for these loans was now seven years.

READ: PH credit card, salary loans hit record highs

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This is longer than the previous standard term of three years, which could only be extended to five years in special cases.

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Banks and other BSP-supervised financial institutions are still required to determine the actual repayment period based on various factors, including employment records, repayment history, existing debt obligations and the borrower’s disposable income after debt payments.

The BSP also prohibited loan renewals or extensions without a reassessment of the borrower’s repayment capacity and continued creditworthiness. These will also not be allowed unless borrowers have settled unpaid interest and made actual payments that reduce their remaining loan balance.

“The Bangko Sentral recognizes the helpful role of salary-based, consumer lending schemes in allowing individual borrowers to manage their cash flows provided these are granted under sound credit standards and fair consumer practices,” the circular read.

“The Bangko Sentral likewise encourages competition and transparency to promote efficient and innovative delivery of financial services and fair dealing with customers,” it added.

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Salary-based general-purpose consumption loans refer to those used for immediate to short-term needs, such as education, health care, emergencies, travel, household needs and other personal expenses. Repayment is typically through salary, pension or other forms of stable cash flow.

Housing loans, motor vehicle loans and credit card loans are not covered by the amended rules even if repayments are made through salary deductions or similar arrangements.

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Meanwhile, the circular also requires banks to classify salary-based loans granted to Department of Education borrowers enrolled under the Automatic Payroll Deduction System (APDS) based on their original repayment terms.

Loans with original terms of one year or less are considered short-term, those exceeding one year up to five years are classified as medium-term, while those exceeding five years are categorized as long-term.

The APDS regulates salary deductions for teachers and staff, mainly for the repayment of loans from accredited lending companies.

“The BSP continues to work with the Department of Education and partner financial institutions to promote financial literacy and responsible borrowing. Part of this effort is ensuring borrowers retain enough take-home pay after loan repayments,” the central bank said in a statement.

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Latest data showed that outstanding salary-based loans grew 6.1 percent year-on-year to P170.2 billion as of April 2026. INQ