Short answer. Your payment goes to interest first. Article 1253 of the Civil Code states that if a debt produces interest, payment of the principal is not considered made until all interest has been covered. Only after the interest is fully paid does the remainder of your payment reduce the principal.
What the law says
If the debt produces interest, payment of the principal shall not be deemed to have been made until the interests have been covered.
Civil Code, Article 1253 — Interest Applied Before Principal. Read the full provision →
Interest comes before principal — by law
Article 1253 establishes a default rule that applies whenever a loan or debt carries interest: principal is not reduced until all outstanding interest is paid. This is not a matter of what the creditor prefers or how the receipt is worded — the law sets this order. If you make a payment of ₱10,000 and ₱8,000 of that is needed to cover the accumulated interest, only the remaining ₱2,000 goes toward the principal balance. The interest must be fully covered first.
Why this matters for long-running debts
On loans that have been running for a long time without regular payment, the accumulated interest can be substantial. When a borrower finally makes a partial payment assuming it will cut into the principal, they may be surprised to find that the creditor applies it entirely to interest and the principal balance remains unchanged. This is legally correct under Article 1253. It also means that if interest keeps accruing at the same rate as your payments, your principal debt may not decrease at all — or may even grow.
Can the parties agree to a different order?
Article 1253 operates as a default rule, which means it applies when the loan agreement does not specify a different order of payment application. If your loan contract expressly states that payments will be applied to principal first — or in some other order — that contractual arrangement controls. The law fills the gap when the contract is silent. If your contract is unclear or you were not told how payments would be applied, the statutory default applies and interest is covered first.
What to do if this affects you
Ask your lender for a complete statement of account showing how each payment was applied — how much went to interest and how much, if anything, reduced the principal. Compare this against what your loan agreement says. If the statement shows that all your payments have gone to interest and the principal balance has not moved, this may indicate that the interest rate and your payment amount are mismatched — you are not paying down the debt. A lawyer can review your loan documents and the statement of account and advise you on whether you have grounds to question the computation or renegotiate the terms.
Cases citing this provision
These Supreme Court decisions cite the provision above. We list them so you can read them yourself; the summaries of what each decided are not ours to give.
- Nunelon R. Marquez vs. Elisan Credit Corporation, G.R. No. 194642, April 6, 2015 — read the decision on LawPhil →
- Spouses Salvador Abella and Alma Abella vs. Spouses Romeo Abella and Annie Abella, G.R. No. 195166, July 8, 2015 — read the decision on LawPhil →
- Rosemarie Q. Rey vs. Cesar Anson, G.R. No. 211206, November 7, 2018 — read the decision on LawPhil →
- Spouses Juan Chuy Tan and Mary Tan vs. China Banking Corporation, G.R. No. 200299, August 17, 2016 — read the decision on LawPhil →