Under Tennessee interest rate laws, the maximum a lender can charge is 10% per year on loans with no written agreement and the “formula rate” — 10.75% as of March 2026 — on loans that are in writing. Certain lenders operate under their own statutes and price outside that framework: payday lenders can add fees up to 15% of the check’s face value, and title pledge lenders can charge 2% per month plus a one-time origination fee. Federal law overrides state limits for national banks and most first-lien mortgages.
The Three Tiers of Maximum Interest
Tennessee Code 47-14-103 organizes usury limits into three tiers. Which one applies depends on the type of loan and whether the parties signed anything.1Justia. Tennessee Code 47-14-103 – Maximum Effective Rates Generally
- If a specific Tennessee statute already sets a rate for that kind of lender or loan — payday, title pledge, and others — that statute controls.
- If the loan is documented in a signed agreement and no special statute applies, the ceiling is the formula rate.
- If there is no written agreement and no special statute, the cap is 10% per year.
The 10% figure gets quoted a lot, but it really only reaches informal debts where nothing was put in writing. Almost every consumer or commercial loan of any size involves a signed contract, and for those the formula rate is the operative ceiling.
How the Formula Rate Works
Tennessee defines the formula rate as four percentage points above the average prime loan rate published by the Federal Reserve’s Board of Governors, or 24% per year, whichever is less.2Justia. Tennessee Code 47-14-102 – Definitions If the Federal Reserve ever stops publishing the prime rate, the ceiling locks in at 24% until the legislature acts.
The commissioner of financial institutions calculates the rate whenever the underlying prime rate changes and publishes it monthly in the Tennessee Administrative Register. A new rate takes effect seven days after publication, and lenders can rely on the most recently published figure when writing a contract.3Justia. Tennessee Code 47-14-105 – Announcement and Publication of Formula Rate
As of March 31, 2026, the bank prime loan rate is 6.75%, which puts the formula rate at 10.75%.4Tennessee Department of Financial Institutions. Historical Listing of Formula Rates Because the number shifts with Federal Reserve moves, check the current figure before you sign anything.
Payday Loans
Tennessee licenses payday lending as “deferred presentment services,” and any storefront, phone, fax, or online operator has to be licensed by the Department of Financial Institutions.5Tennessee Department of Financial Institutions. Consumer Notice Deferred Presentment Services Act
A licensed payday lender can charge a fee of up to 15% of the face amount of the check to cover operational costs. Under Tennessee law this fee is not classified as “interest,” so the formula rate ceiling does not touch it.6Justia. Tennessee Code 45-17-112 – Retention of Records – Operating Costs – Deferred Presentment Procedures A single borrower may have no more than three payday transactions outstanding at once, and the combined face value of all outstanding checks cannot exceed $500. Before completing the transaction, the lender must give the borrower a written, plain-language explanation of every fee and the deposit date.
Title Loans
Tennessee’s Title Pledge Act also requires a license, and any title-secured loan made without one is void.7Justia. Tennessee Code Title 45 Chapter 15 – Title Pledges Licensed lenders can charge up to 2% per month in interest plus a one-time origination fee for appraisals, title searches, insurance, and documentation. The origination fee cannot exceed one-fifth of the original principal or the total unpaid balance at the start of any renewal.8Justia. Tennessee Code 45-15-111 – Rate of Interest and Charges – Consumer Notification and Disclosure Form
The origination fee is not counted as interest under state law. Even setting it aside, 2% per month works out to 24% annually, which places title loans among the most expensive forms of borrowing available in Tennessee. Title pledge contracts run 30 days at a time and can be renewed.
Mortgages and National Banks
Two big categories of lending largely escape Tennessee’s rate ceilings because federal law preempts them.
First-lien residential mortgage loans made after March 31, 1980 fall under the Depository Institutions Deregulation and Monetary Control Act, which preempts state limits on rate, discount points, and finance charges for virtually all first-lien home loans regardless of the lender.9Federal Deposit Insurance Corporation. Mortgage Bankers Association Comment Letter on Federal Interest Rate Authority Mortgage brokers, lenders, and servicers still need Tennessee licenses under the Residential Lending, Brokerage and Servicing Act, and federal ability-to-repay and disclosure rules from the Consumer Financial Protection Bureau still apply, but the formula rate itself has limited practical effect on ordinary home loans.10Justia. Tennessee Code 45-13-201 – License Required – Exceptions
Federally chartered banks can charge interest based on the laws of the state where they are located, not the state where the borrower lives. A national bank headquartered in a state with no usury cap can lend to Tennessee residents above the formula rate under the National Bank Act and its implementing regulation.11eCFR. 12 CFR 7.4001 – Charging Interest by National Banks at Rates Permitted Competing Institutions Federal credit unions have parallel preemption under the Federal Credit Union Act.
Interest on Court Judgments
Tennessee resets the judgment interest rate every six months. The rate equals the formula rate minus two percentage points. For judgments entered from January 1 to June 30, the calculation uses the formula rate from the previous December; for judgments entered from July 1 to December 31, it uses the formula rate from June.12Justia. Tennessee Code 47-14-121 – Interest on Judgments – Rate
The Administrative Office of the Courts publishes the current rate and a historical table on its website. As of January 1, 2026, the judgment interest rate is 8.75%.13Tennessee Administrative Office of the Courts. Tennessee Judgment Interest Rates Once a judgment is entered, its rate locks in and does not fluctuate.
There is one significant exception. When a judgment is based on a contract, note, or statute that already specifies a lawful interest rate, the judgment carries interest at that contractual rate instead of the statutory rate. Courts also have discretion to award pre-judgment interest, particularly when damages were hard to calculate at the time of the injury.
What Happens if a Lender Charges Too Much
Tennessee penalizes usury on two tracks: one for the contract itself and one for willful lender conduct.
Civil Consequences
When a loan agreement requires usurious interest on its face, the contract cannot be enforced on its stated terms. The lender can still sue to recover the principal actually advanced plus lawful interest. If the excess charges are hidden and only proved later, the outcome is the same: principal and lawful interest only.14Justia. Tennessee Code 47-14-117 – Usury or Excessive Charges – Contracts
The penalty gets much heavier if a court finds the lender’s conduct unconscionable, meaning a calculated violation with full awareness of the legal limits. In that case, the lender forfeits all interest, fees, and charges on the transaction and must refund all fees and charges plus twice the amount of interest already collected. The borrower also recovers reasonable attorney’s fees.
Criminal Penalty
Willful collection of usury is a Class A misdemeanor.15Justia. Tennessee Code 47-14-112 – Usury a Misdemeanor – Penalty That carries up to 11 months and 29 days in jail and a fine of up to $2,500. Criminal prosecution is uncommon in practice, but the statute exists for cases where overcharging is deliberate rather than a mistake.
Extra Protection for Service Members
Active-duty military members and their dependents get two additional caps that override Tennessee law.
The Servicemembers Civil Relief Act caps interest at 6% per year on most debts incurred before the service member entered active duty, including credit cards, car loans, mortgages, student loans, and home equity lines. Interest above 6% must be forgiven retroactively to the date of the active-duty orders, and any excess already paid must be refunded. For mortgages the cap extends one year past the end of service. To claim it, the service member sends written notice and a copy of orders to the creditor no later than 180 days after service ends.16U.S. Department of Justice. Your Rights as a Servicemember – 6% Interest Rate Cap for Servicemembers on Pre-service Debts
The Military Lending Act covers new consumer loans taken out during active duty and caps the Military Annual Percentage Rate at 36%. The MAPR sweeps in finance charges, credit insurance premiums, and add-on product fees that a standard APR calculation might leave out.17Consumer Financial Protection Bureau. What Are My Rights Under the Military Lending Act? Because Tennessee treats payday and title lending fees as something other than interest, the MLA’s broader definition often catches charges that state usury law does not.