Most states have laws limiting the interest rates a creditor may charge, anywhere from 5 to 15 percent, but consumers usually consent to higher rates by agreeing to the terms of the loan (thus waiving statutory interest rate limits). In Texas, interest rates are statutorily limited to 6 percent, or 18 percent for interest rates on judgments. Texas interest rate laws also provide an exception to these limits for business loans, commercial loans, investments, and open-end accounts.
Limits on the amount of interest a creditor may charge are often referred as "usury" laws. The term itself has been used since the Middle Ages and once had a negative association with any kind of interest-bearing loan. It has since been redefined as a term pertaining to excessive interest for loans. While Texas law specifically exempts certain types of loans from its interest rate limits (including business loans and open-ended accounts), it doesn't apply to rates to which both parties agree.
Refer to the table below to learn more about Texas interest rate laws. See FindLaw's Financial Consumer Protection section for related articles, including Usury Laws and Limits on Credit Card Interest Rates.
| Legal Maximum Rate of Interest | When not specified, 6% (Finance §302.002) |
| Penalty for Usury (Unlawful Interest Rate) | The greater of 3 times the amount computed subtracting the amount of interest allowed by law from the total amount of interest contracted for, charged, or received; or $2000 or 20% of the amount of principal, whichever is less (Finance §305.001 to 305.003); creditor who is liable is also liable for reasonable attorney's fees (Finance §305.005); each offense is a misdemeanor with fine of up to $1000 (Finance §305.008) |
| Interest Rates on Judgments | If contract rate, then lesser of the contract rate or 18% (Finance §304.002) |
| Exceptions | Loan for business, commercial, investment, or similar purpose; open-end accounts (Finance §303.305) |
Note: State laws are constantly changing -- contact a Texas consumer protection attorney or conduct your own legal research to verify the state law(s) you are researching.
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When you make a purchase, paricularly large purchases such as homes and automobiles, you typically sign a lot of documents and confronted with an often-confusing array of numbers and rates. But if you are asked to pay interest rates that go well beyond the statutory limits, you may have a valid claim. Consider speaking with a Texas banking and finance attorney for peace of mind.
