Quick Answer
The Texas Constitution and the Texas Finance Code establish limits on the maximum interest rates that can be charged for loans made in Texas. Seller financing, wraps, and other creative finance structures must comply with these usury limits. The maximum rate depends on the type of loan, the amount, and whether it is for business or consumer purposes.
Educational Information
This article provides general educational information about Texas usury laws. It does not constitute legal advice. Usury laws are complex and fact-specific. Sellers who provide owner financing should consult with qualified legal counsel to ensure their transaction complies with applicable usury limits and lending regulations.
Texas usury laws place important limits on interest rates that can be charged in both institutional and seller-financed transactions. Understanding these limits helps sellers and investors structure compliant financing.
Texas Constitutional and Statutory Limits
The Texas Constitution sets a maximum interest rate of 10% per year for most types of loans unless a specific exception applies. The Texas Finance Code provides additional rules and exceptions for various types of loans. Certain types of loans, including business loans above a threshold amount, may be exempt from usury limits. Consumer loans (including seller financing to individuals for personal purposes) are subject to specific limits.
Application to Seller Financing
When a seller provides financing to a buyer, the interest rate charged must comply with Texas usury laws. If the loan is a consumer-purpose loan (such as financing for a personal residence), the rate limits may be more restrictive than for business-purpose loans. Sellers should ensure their promissory notes include specific usury savings clauses and that the interest rate is within applicable limits.
Penalties for Usury Violations
Charging interest in excess of the legal limit can result in serious consequences, including forfeiture of all interest, penalties equal to double the interest charged (plus attorney fees), and potential criminal liability in egregious cases. This is why proper legal guidance is essential before structuring any seller-financed transaction.
FAQs
What is the current usury limit in Texas?
The Texas Constitution sets a maximum rate of 10% per year for most loans, but the Texas Finance Code provides higher ceilings for certain types of loans and transactions. The specific limit depends on the loan type, amount, and purpose.
Do usury laws apply to commercial loans in Texas?
In many cases, commercial loans above a threshold amount (currently $250,000 or more under the Texas Finance Code) are exempt from usury limits. However, smaller commercial loans and consumer loans remain subject to rate limitations.