The maximum interest rate allowed by law in Texas is 10% per year under the state constitution, but that number governs far fewer loans than it sounds like it should. Specialized statutes authorize much higher rates for consumer installment loans, payday and title lending, and commercial credit, and federal law lets most banks and credit card issuers bypass Texas caps entirely. The ceiling that actually applies to your loan depends on what kind of credit it is and who is lending the money.
The 10% Constitutional Default
Article XVI, Section 11 of the Texas Constitution sets two baseline rates. When a written agreement specifies interest, the ceiling is 10% per year. When the agreement says nothing about interest, the rate cannot exceed 6% per year.1Texas State Law Library. What Is the Maximum Interest Rate I Can Be Charged Under Texas Law Section 302.001 of the Texas Finance Code repeats the 10% cap and declares anything higher usurious and against public policy, “except as otherwise provided by law.”
That exception phrase does most of the real work. The Legislature has carved out higher rates for nearly every common lending product. What the 10% cap mainly catches is informal lending: promissory notes between individuals, private loans, and any transaction that doesn’t fit under one of the specialized chapters below.
Consumer Installment Loans
Licensed consumer lenders operate under Chapter 342 of the Texas Finance Code, which uses an add-on interest formula rather than a straight percentage cap. Smaller loans carry steeper allowable rates.
Section 342.201 lets lenders charge up to $18 per $100 per year on the portion of a loan up to a lower bracket amount, and up to $8 per $100 per year on the portion between that lower bracket and a higher one.2State of Texas. Texas Finance Code 342-201 – Maximum Interest Charge and Administrative Fee Those thresholds are indexed to the Consumer Price Index and republished each year by the Office of Consumer Credit Commissioner.3Texas Office of Consumer Credit Commissioner. Interest Rates
The add-on method produces an effective annual percentage rate higher than the per-$100 figure suggests. For a small loan repaid in monthly installments, the $18-per-$100 tier translates to an APR that can approach 30% or more, while the $8-per-$100 tier produces effective rates in the mid-teens. That is why small consumer loans in Texas are often described as carrying rates up to roughly 30%, even though no single statute states that number.
Payday and Auto Title Loans
Payday and auto title loans are where the Texas rate limits break down in practice. The third-party lender technically stays within the 10% constitutional cap, but the storefront arranging the loan operates as a Credit Access Business under Chapter 393 of the Finance Code and charges brokerage fees that are not classified as interest and are essentially uncapped.4State of Texas. Texas Finance Code Chapter 393
The all-in cost is severe. According to OCCC data, a single-payment payday loan arranged through a Credit Access Business carries an estimated APR of roughly 537% when fees are included, and fully amortizing installment payday loans average around 488%.5Texas Office of Consumer Credit Commissioner. 2024 Report on Availability, Quality, and Pricing of Certain Financial Products Auto title loans run lower but still routinely exceed 200% in effective APR.
Credit Access Businesses must be licensed by the OCCC, must give borrowers a fee schedule and the OCCC’s toll-free number before closing, and cannot impose prepayment penalties. None of those requirements change the underlying cost.
Credit Cards and Bank Loans
If your lender is a national bank, federal savings association, or federally insured state bank, Texas usury limits probably don’t apply to your loan. Federal law lets these institutions export the interest rate rules of their home state.
Under 12 U.S.C. § 85 and 12 CFR § 7.4001, a national bank can charge any borrower, anywhere, the maximum rate permitted to lenders in the state where the bank is located.6eCFR. 12 CFR Part 7 Subpart D – Preemption That is why a credit card issued by a bank headquartered in South Dakota or Delaware can charge you 25% or 29.99% in Texas. State-chartered FDIC-insured banks get parallel treatment under Section 27 of the Federal Deposit Insurance Act and 12 CFR Part 331, letting them charge the maximum rate allowed to any state-chartered or licensed lender in their home state, or 1% above the 90-day commercial paper rate, whichever is greater.7eCFR. 12 CFR Part 331 – Federal Interest Rate Authority
Most credit cards, many auto loans, and a large share of personal loans in Texas come from federally chartered or insured lenders, so Texas rate caps simply don’t govern them.
Commercial Loans
Business borrowers face a different framework. Under Chapter 306 of the Finance Code, parties to a qualified commercial loan can agree to any rate up to the applicable statutory ceiling rather than the general 10% cap.8State of Texas. Texas Finance Code 306-101 The OCCC publishes those ceilings weekly in the Texas Credit Letter using formulas in Sections 303.003, 303.005, and 303.009. For the first quarter of 2026, the monthly ceiling for variable-rate commercial transactions was 18%.9Texas Office of Consumer Credit Commissioner. Texas Credit Letter – Notice of Rate Ceilings
Merchant cash advances and factoring, where a business sells future receivables at a discount rather than borrowing, generally sit outside Texas usury law altogether. Courts have treated those transactions as asset purchases, not loans, so the effective cost of capital can exceed statutory interest caps without triggering usury penalties.
Home Equity Loans
Home equity loans in Texas are controlled less by a rate ceiling and more by a strict framework in Article XVI, Section 50 of the state constitution. Total liens against the home cannot exceed 80% of fair market value, only one home equity loan can be outstanding at a time, and fees to originate, evaluate, maintain, record, insure, or service the loan cannot exceed 3% of the original principal in the aggregate.10Justia Law. Texas Constitution Article XVI Section 50 The constitution does not set a specific interest rate ceiling for home equity loans, so the rate itself is governed by whichever lending statute applies to the lender.
Rate Caps for Military Borrowers
Active-duty service members and their spouses get federal protections that override both Texas law and the lender’s contract.
The Military Lending Act caps the Military Annual Percentage Rate at 36% on most consumer credit, including payday loans, auto title loans, credit cards, installment loans, and overdraft lines. The MAPR includes finance charges, credit insurance premiums, and add-on product fees, so lenders cannot shift the cost into fees to escape the cap. The MLA does not cover residential mortgages, auto purchase loans secured by the vehicle, or home equity lines of credit.11Consumer Financial Protection Bureau. Military Lending Act (MLA)
For debts incurred before entering active duty, the Servicemembers Civil Relief Act lets a service member request a reduction to 6% per year. The borrower must send the lender written notice and a copy of military orders no later than 180 days after service ends. The reduction applies retroactively to the date the active-duty orders were issued, and it covers joint debts if both spouses are on the account.12U.S. Department of Justice. Your Rights as a Servicemember – 6 Percent Interest Rate Cap for Servicemembers on Pre-Service Debts
What You Can Recover If a Lender Charged Too Much
Texas Finance Code Chapter 305 sets the penalties. On a consumer loan, a lender who charges more than the authorized rate is liable for the greater of three times the excess interest, or a minimum penalty of $2,000 or 20% of the principal, whichever of those two minimums is less.13State of Texas. Texas Finance Code Chapter 305 – Penalties and Remedies The borrower does not have to prove the lender acted knowingly. Commercial transactions carry treble damages without the minimum floor.
Penalties escalate sharply if the lender charged more than twice the authorized rate. In a consumer transaction at that level, the borrower can recover the entire principal plus all interest and other charges paid, which forfeits the full loan. Charging more than double the legal rate also carries criminal exposure.
You have four years from the date the usurious interest was contracted for, charged, or received to file suit. That deadline is firm.
Where to Report a Suspected Violation
The Office of Consumer Credit Commissioner handles complaints about licensed lenders, including disputes over interest and fees. Complaints can be filed online, by mail, or by phone. Attach the loan agreement, payment history, and anything showing the charges you believe are excessive. The OCCC can investigate, order corrective action, impose fines, or revoke a license.14Texas Office of Consumer Credit Commissioner. Complaint Resolution
For broader patterns of deceptive lending, the Texas Attorney General’s Office can seek injunctions and restitution. You also have the right to sue directly under Chapter 305, which is where the treble damages and principal-forfeiture remedies live.13State of Texas. Texas Finance Code Chapter 305 – Penalties and Remedies Given the four-year window, acting quickly matters.