Loans2 min read · Updated October 21, 2026
Add-on rate vs the real rate on a loan
A 12% add-on rate is not 12% a year. See the effective rate and a worked example.
Why the real rate is higher
You repay part of the loan every month, but add-on interest is still worked on the original amount. So the true yearly rate on what you actually owe is much higher.
Example: ₱100,000, 24 months, 12% add-on
| Monthly payment | ₱5,167 |
| Total repaid | ₱124,000 |
| Effective yearly rate | 21.6% |
Common questions
What is an add-on rate?
Interest charged on the original loan amount for the whole term.
Is 12% add-on the same as 12% a year?
No. It is much closer to twice that on the declining balance.