There is not one law that sets a maximum interest rate in Texas. Instead, there are various Texas laws that address interest rates in different situations.

Generally

A few sections of Texas law put limits on interest rates. Article 16, Section 11 of the Texas Constitution states that in the absence of other legislation, contracts for an interest rate higher than 10% per year "shall be deemed usurious." This section also states that "in contracts where no rate of interest is agreed upon, the rate shall not exceed" 6% per year. 

Several chapters of the Texas Finance Code have defined interest rates for other types of financial situations:

• Chapter 302 discusses interest rates in general and restates the maximum interest rates found in the Texas Constitution. 
• Chapter 303 discusses optional rate ceilings. Section 303.009 caps interest at 18% per year. 
• Chapter 342 discusses consumer loans and interest charges beginning in Subchapter E.
• Chapter 345 discusses retail installment sales and permissible time price differentials.
• Chapter 346 discusses revolving credit accounts like credit cards. Section 346.101 creates a maximum interest rate of 18% per year. Please note that according to an opinion by the Federal Deposit Insurance Corporation’s general counsel, certain interstate banks may "export" the highest interest rate allowable in their home state. 

Motor vehicle sales

Section 348.103 of the Texas Finance Code concerns interest on car sales. This section places limits on the "time price differential" for motor vehicle installment sales with equal monthly payments.

Section 348.001 defines "time price differential" as "the total amount added to the principal balance to determine the balance of the retail buyer's indebtedness under a retail installment contract."

The Office of the Consumer Credit Commissioner’s chart of current motor vehicle rates explains how this law is implemented. You can use the charts on this page to determine the maximum allowable rate for a given situation. 

Payday and title loans

The Texas Fair Lending Alliance has an explanation of payday loan interest rates on their page about the basics of payday & auto title loans: 

How are interest rates of 200% to over 500% legal in Texas?

Usury protections in the Texas Constitution prohibit lenders from charging more than 10% interest unless the Texas Legislature specifically authorizes a higher rate. The rates in the Texas market should not be legal, but payday and auto title businesses have found a way around the constitutional usury protections by exploiting a legal loophole:

• They register as Credit Services Organizations and may be licensed as a Credit Access Business (CAB) under the Credit Services Organizations (CSO) Act.
• They broker loans between the borrower and a third-party lender and charge borrowers high fees for arranging and guaranteeing these loans.
• The third-party lender charges interest at or below 10% to avoid licensing under Texas law. CSO or CAB fees are completely unregulated and result in APRs over 500%.

The law about interest rates can be complex, so you may wish to talk to an attorney before taking any action. For more information on finding an attorney, please see the library's Legal Help page.

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