Clear terms drive borrowers to cheaper digital loans – BSP

January 4, 2026 | 12:00am

MANILA, Philippines — Filipino borrowers tend to pick cheaper and more favorable digital loans when product information is clearly presented and easy to compare, according to a discussion paper by the Bangko Sentral ng Pilipinas (BSP) on the country’s fast-growing digital credit market.

The study found that standardizing how loan terms are shown nudges consumers toward products with “lower effective interest rates and higher probability of approval at the expense of longer time to disburse and higher documentation requirements.”

Digital credit, described in the paper as “short-term, high-interest loans offered via mobile channels,” has expanded rapidly as more Filipinos rely on mobile apps to cover daily expenses and short-term cash needs.

The study, however, noted that borrowers often struggle to understand and compare loan costs because information is presented in inconsistent and sometimes unclear ways.

To examine how consumers make choices, the researchers conducted an online experiment involving about 4,000 prospective digital credit users.

Participants were asked to choose between hypothetical loan products under different disclosure formats, ranging from marketing-style ads to standardized tables showing key loan details.

The results showed that even simple improvements in disclosure could make a meaningful difference. When loan information was standardized, borrowers chose loans with effective interest rates that were 2.70 percentage points lower, equivalent to a 17-percent reduction from the baseline. When the total cost of credit was clearly shown as an effective interest rate, the reduction reached 2.94 percentage points, or 18 percent.

The paper also found that how loans are arranged affects decisions. Ranking products by a specific feature, such as interest rate or late payment fees, further improved choices. 

Ranking loans by effective interest rate led to an additional 1.54 percentage point drop in the rate selected, while ranking by late payment fees reduced average late charges by P2.63 per day.

However, the study cautioned that these tools do not work equally well for everyone. It found that “typical consumers are responsive to disclosures about late payment fees but not overconfident consumers.”

Borrowers who overestimated their financial knowledge were less likely to react to warnings or rankings about late fees, even though they were more likely to have missed payments in the past.

The paper also highlighted persistent gaps in how digital lenders advertise loan terms. Based on a review of 72 digital credit platforms, the authors found that “36 percent of products do not explicitly advertise loan fees and 64 percent do not explicitly advertise how late fees are calculated.”

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