The Tennessee maximum interest rate depends on what kind of loan you have. For most written loan agreements between private parties, the ceiling is the state’s “formula rate,” which currently sits at 10.75% per year.1Tennessee Department of Financial Institutions. Formula Rate Loans without a written contract are capped at 10% per year. Payday lenders, industrial loan and thrift companies, and federally chartered banks each operate under separate rules that allow much higher rates.
The Formula Rate on Written Loans
Tennessee’s formula rate is the maximum interest a lender can charge on most written loan agreements signed by the borrower. It equals four percentage points above the average prime loan rate most recently published by the Federal Reserve Board, with a hard ceiling of 24% per year.2FindLaw. Tennessee Code 47-14-102 – Definitions If the Federal Reserve ever stops publishing the prime rate, the formula rate automatically locks at 24% until the legislature changes it.
As of March 2026, the weekly average prime rate is 6.75%, putting the formula rate at 10.75% per year.1Tennessee Department of Financial Institutions. Formula Rate Because it moves with the prime rate, anyone entering a longer-term private loan agreement should check the Tennessee Department of Financial Institutions website for the current figure. A loan that was legal on the day it was signed doesn’t turn usurious if the formula rate later falls below the agreed rate. But a new loan written today has to stay at or below today’s formula rate.
The 10% Cap on Loans Without a Written Contract
When there’s no written agreement and no other statute governs the transaction, the maximum is a flat 10% per year.3Justia. Tennessee Code 47-14-103 – Maximum Effective Rates of Interest This is the ceiling for informal or oral lending arrangements, like borrowing from a friend or family member on a handshake. If money changes hands with an expectation of interest but nothing is written down, 10% is the ceiling.
Payday Loan Fees
Payday lending in Tennessee operates under the Deferred Presentment Services Act, which replaces the general interest caps with its own fee structure.4Justia. Tennessee Code 45-17-101 – Short Title Rather than traditional interest, payday lenders can charge a flat fee of up to 15% of the check’s face amount.5FindLaw. Tennessee Code 45-17-112 – Deferred Presentment Services On a $300 loan, that’s a $45 fee. Because these loans usually run about two weeks, the annualized cost can easily top 390%.
Tennessee places several guardrails on payday lending. No single payday lender can hold more than two outstanding checks from the same customer at one time, and the total face value of all your outstanding payday checks across every lender can’t exceed $500.5FindLaw. Tennessee Code 45-17-112 – Deferred Presentment Services Before issuing a new loan, the lender has to make you represent in writing how many outstanding payday checks you have. Rollovers, where you pay only the fee to extend the loan without reducing the principal, are not permitted.
Industrial Loan and Thrift Company Rates
Licensed industrial loan and thrift companies can charge well above the formula rate, and the ceiling depends on the loan amount.6Justia. Tennessee Code 45-5-401 – Contracts for Interest – Computation
- Under $100: up to 18% per year
- $100 to $5,000: up to 30% per year
- Over $5,000: up to 24% per year
- Open-end credit plans: up to 24% per year
These caps only apply to lenders specifically licensed under the Tennessee Industrial Loan and Thrift Companies Act. A private individual or an unlicensed lender cannot use them. If you’re borrowing from one of these companies, the loan documents should identify the lender’s license, which you can verify through the Tennessee Department of Financial Institutions.
Small Single-Payment Loans
For single-payment loans of $1,000 or less with a term of one year or less, the maximum interest rate is set by rule of the Commissioner of Financial Institutions but cannot exceed 10% per year.7Justia. Tennessee Code 47-14-104 – Single Payment Loans On top of interest, the lender can charge a loan processing fee of up to $7.50 on the first $100 of principal and $1.50 for each additional $100, capped at $20 total. That fee cannot be charged again if the loan is renewed.
Banks, Credit Unions, and Credit Cards
If you borrow from a nationally chartered bank, Tennessee’s caps may not apply at all. Under federal law, a national bank can charge interest at the rate allowed by the state where the bank sits, even if that rate exceeds Tennessee’s limits.8Office of the Law Revision Counsel. 12 USC 85 – Rate of Interest on Loans, Discounts and Purchases That’s why a credit card issued by a bank located in Delaware or South Dakota can legally charge 20% or more to a Tennessee cardholder. The bank follows the rules of its home state, not yours.
Federal credit unions operate under a separate ceiling set by the National Credit Union Administration. The Federal Credit Union Act generally caps loan interest at 15% per year, but the NCUA Board can temporarily raise it when market conditions warrant. As of 2026, the NCUA has approved a temporary ceiling of 18%, in effect through September 2027.9National Credit Union Administration. NCUA Board Extends Loan Interest Rate Ceiling
State-chartered banks and credit unions also benefit from federal preemption under the Depository Institutions Deregulation and Monetary Control Act of 1980. The practical result: most banks and credit unions you encounter in Tennessee are not bound by the formula rate or the 10% cap.
Military Borrowers
Active-duty servicemembers and their dependents get an additional federal protection. The Military Lending Act caps the rate at 36% per year on most consumer loans, measured as a “Military Annual Percentage Rate” that rolls in many fees a lender might otherwise charge separately.10Consumer Financial Protection Bureau. Military Lending Act (MLA) The cap reaches credit cards, payday loans, deposit advances, vehicle title loans, most installment loans, and some student loans. It does not cover residential mortgages, auto purchase loans secured by the vehicle, or personal property loans secured by the item being purchased.
What Counts as Interest
Tennessee courts look at the economic reality of a loan, not just what the paperwork calls each charge. If a fee functions as compensation for the use of money over time, it is interest for purposes of the usury statutes, regardless of whether the lender labels it an “administrative fee,” “processing charge,” or anything else. A lender can’t sidestep the cap by shifting charges into differently named categories. Any charge that pushes the borrower’s cost of credit past the statutory ceiling can trigger usury penalties.
What Happens When a Lender Charges Too Much
At a minimum, a loan agreement that requires usurious interest on its face is unenforceable as written. The lender can still recover the principal it actually advanced, plus whatever interest and charges would have been lawful, but it loses the right to collect the excess.11Justia. Tennessee Code 47-14-117 – Usury or Excessive Charges – Contracts The same rule applies when usury doesn’t appear on the contract’s face but is later proven.
The real teeth come when a court finds “unconscionable conduct,” which includes any deliberate violation of the interest rate limits by a lender who knew those limits existed. In that case the lender forfeits all interest, loan charges, and fees from the transaction, must refund any charges already collected, and must pay the borrower twice the amount of interest collected. The borrower also gets reasonable attorney’s fees.11Justia. Tennessee Code 47-14-117 – Usury or Excessive Charges – Contracts
Willful collection of usurious interest is also a Class A misdemeanor in Tennessee.12Justia. Tennessee Code 47-14-112 – Usury a Misdemeanor – Penalty That carries up to 11 months and 29 days in jail, a fine of up to $2,500, or both.13Justia. Tennessee Code 40-35-111 – Authorized Terms of Imprisonment and Fines for Misdemeanors Criminal prosecution for usury is uncommon but remains available when a lender’s conduct crosses into willful territory.
Watch for Out-of-State Choice-of-Law Clauses
Tennessee law lets parties to a written loan agreement choose another state’s or country’s interest rate laws if the transaction has a reasonable connection to both places, and only when the transaction is not subject to federal consumer credit disclosure requirements.14Justia. Tennessee Code 47-14-119 – Choice of Laws In practice, that provision mainly affects commercial or business loans between sophisticated parties. If a lender asks you to agree that another state’s law governs your consumer loan, be cautious. That request can signal an attempt to route around Tennessee’s borrower protections.