Texas Usury Laws
The Lone Star State has not established specific usury caps for consumers in Texas. This does not mean that there are not certain restrictions on the books in Texas dealing with lending practices and interest rates. However, there are no traditional usury caps that are seen in many other states in the country today.
With this in mind, it is important to understand that working your way through the lending laws and interest rate regulations in Texas can be akin to walking through a mine field. Therefore, if you are interested in extending a loan or financing to another individual, or if you are interested in borrowing money, you might be well served in obtaining the assistance of legal counsel to give you more definitive information about loans, lending practices and interest in Texas. This article is intended to provided you only with some basic information; it is not intended to provide you with legal advice.
The general legal rate of interest in Texas that is used on personal loans and in many consumer transactions has been set at 6%. The judgment rate of interest in Texas on civil cases is 18% or the contract rate of interest, whichever is less.
As referenced, there are a number of different ceilings when it comes to different types of loans in Texas. Beyond those that have been mentioned a moment ago, you need to be aware that state chartered financial institutions (banks, savings and loans, credit unions) have their own restrictions when it comes to interest rates and lending practices. Other types of lending services have their own interest rate structures that they must adhere to when doing business in Texas.
The specific statutes that are in place in Texas that deal with lending practices and interest rates can be found codified at Texas Statutes -- Business and Commerce Code.
Courts take two different approaches when it comes to dealing with loan agreements that appear to run afoul of applicable laws addressing interest rate caps. First, there are situations in which a court will declare the entire loan agreement void as being illegal and thereby unenforceable. On the other hand, a court can also reform the loan agreement to get rid of the illegal interest provision and replace it with a provision that sets interest at a rate allowed by law.
Keep in mind that while we work to keep the information in this article up to date, lending laws in Texas are subject to change from time to time.