Texas Usury Laws (2026): What You Actually Need to Know
You’ve probably heard the word “usury” before. But here’s the thing most people don’t realize: Texas has some pretty unique rules about it compared to other states. Usury is basically when someone charges you way too much interest on a loan. The rules get complicated fast, so we’re going to break it down in a way that actually makes sense.
Whether you’re borrowing money, lending it, or just curious about how this stuff works, understanding Texas usury laws matters. Seriously. Breaking these laws can cost you real money.
What Is Usury?
Usury is when a lender charges interest that exceeds what Texas law allows. Think of it like a speed limit for interest rates. There’s a legal maximum, and if someone charges more than that, they’ve crossed the line.
Here’s why this law exists: It protects people from predatory lending. Nobody should be trapped paying interest that nobody could possibly repay. Texas decided a long time ago that some limits needed to exist. Makes sense, right?
Texas’s Basic Usury Rules
The General Interest Rate Limit
Okay, here’s the important part. In Texas, the maximum interest rate you can charge on most loans is limited. But wait, here’s where it gets interesting: Texas actually allows higher interest rates than many other states. Personally, I think this is because Texas lawmakers wanted to give lenders more flexibility.
For most consumer loans, the rate can be as high as 18 percent per year. That’s way higher than federal limits for certain types of loans. If someone charges you more than 18 percent on a regular loan, they’ve violated usury law.
But hold on. This isn’t the whole story.
The Contracts That Don’t Have Limits
Here’s where Texas gets really different from other states. You’re not alone if this confuses you. Most people get this part wrong.
In Texas, if both parties to a loan are corporations or business entities, usury limits don’t apply. That means two businesses can agree to any interest rate they want. No limits. No maximums. It’s totally legal.
The same goes for loans where the borrower is a business entity and the lender is either an individual or another business. If you’re a business borrowing money, the usury limits basically disappear.
Wondering if this applies to you? If you’re borrowing for personal reasons, it probably does. If it’s for business, it might not.
When Usury Laws Actually Apply
Consumer and Personal Loans
Consumer loans are where usury laws really matter. If you borrow money for personal use, the 18 percent limit applies. This includes car loans for personal use, personal lines of credit, and money borrowed for household expenses.
Let’s say a friend or family member lends you $5,000. If they charge you 20 percent interest, that’s usury in Texas. It doesn’t matter if it’s a handshake deal or a written contract. The law still applies.
Home Loans Are Different
Hold on, this part is important. Home loans have their own special rules that are separate from regular usury law. Federal law governs most mortgage lending, and those rules are pretty strict. Texas basically lets the federal rules handle mortgages.
If you’re borrowing to buy a home, you’re probably protected by federal lending laws instead of Texas usury law. But that doesn’t mean lenders can charge whatever they want. It just means the protection comes from a different place.
Loans to Businesses
Not sure what counts as a business loan? Here’s the deal. If the person borrowing is any kind of business, even a small one-person business, usury limits usually don’t apply.
But there’s a catch. If a business is very small or new, sometimes usury laws still apply. It depends on how the contract is written and what the loan is for. This is one area where talking to a lawyer makes sense if you’re unsure.
Recent Changes and Updates
Texas usury laws have stayed pretty stable over the years. The 18 percent limit has been in place for a while now. That said, the way courts interpret these laws keeps evolving.
One thing that changed recently is how courts handle hybrid situations. For example, what if someone borrows money partly for personal use and partly for business? Courts now look at the primary purpose of the loan. If the main reason is personal, personal usury limits apply.
What Happens When Someone Violates Usury Law
Financial Penalties
This is where it gets serious. If a lender charges usury rates, they lose the right to collect interest. That’s not a small punishment. Imagine lending someone $10,000 at 25 percent interest. That’s illegal. You get back your $10,000, but you get zero interest on it.
Actually, in some cases, it’s even worse. The borrower might be able to recover money they already paid as excess interest. That’s right. They can get that money back.
Criminal Penalties
Okay, pause. Read this carefully. Usury is typically treated as a civil matter, not a criminal one. That means you get sued, not arrested. But serious violations can sometimes lead to criminal charges, especially if there’s a pattern of illegal lending.
In Texas, criminal usury happens when someone intentionally violates usury law. Penalties can include fines and even jail time. But honestly, most cases don’t reach this level. It’s pretty rare.
Loss of Right to Collect
Here’s what probably matters most to you. If a lender violates usury law, they can’t collect the interest they charged. In some cases, they might not even be able to collect the principal loan amount. It depends on the specific situation and how egregious the violation was.
Pretty straightforward principle, right? If you break the law, you lose your legal claim to the money.
Important Exceptions and Special Cases
Licensed Lenders
Banks and credit unions are heavily regulated by federal and state law. Their interest rates are governed by specific rules that are separate from general usury law. These lenders can charge rates that might be illegal if an unlicensed person charged them.
This is because they have to follow strict compliance rules. They’re audited. They have to report their practices. So the law gives them more flexibility.
Credit Cards and Lines of Credit
Credit card companies operate under federal law that basically overrides state usury limits. If you borrow on a credit card, federal law applies. That’s why credit cards can charge really high interest rates even in states with strict usury laws.
This doesn’t mean it’s a good idea to carry a credit card balance at high rates. It just means the legal limits are different.
High-Risk Loans
Some loans are considered higher risk. Short-term loans or loans to people with bad credit sometimes have different rules. Payday loans, for instance, are regulated differently than regular personal loans.
Texas allows payday lenders to charge fees that look like interest but are technically structured as fees instead. It’s a gray area legally, but it’s different from traditional usury violations.
How to Report Usury or Get Help
If You Think You’ve Been Charged Illegal Interest
You have options here. First, talk to the lender directly. Sometimes it’s a mistake. Sometimes they didn’t realize the rules. A conversation can fix things without legal action.
If that doesn’t work, you can file a complaint with the Texas Attorney General’s Consumer Protection Division. They investigate lending violations and can help protect other consumers.
Legal Help and Resources
Not sure where to start? You can talk to a lawyer who handles consumer protection cases. Many offer free consultations. They can look at your loan documents and tell you if something illegal happened.
Legal aid societies in Texas can help if you can’t afford a lawyer. They provide free or low-cost legal services to people who qualify.
Debt Counseling Services
Stay with me here. If you’re struggling with high interest rates or debt generally, credit counseling can help. Non-profit counseling agencies can teach you about your rights and help you negotiate with lenders.
These aren’t your only options, but they’re good starting points.
Frequently Asked Questions
Can a friend or family member charge me interest on a personal loan? Yes, they can charge interest in Texas. But they can’t charge more than 18 percent annually on a personal loan. If they do, that’s usury.
Does Texas usury law apply to business loans? Usually not. If both parties are businesses, usury limits don’t apply. If you’re borrowing as a business, talk to a lawyer about your specific situation.
What if I already paid too much interest? Can I get it back? Possibly. You might be able to sue for recovery of excess interest in some situations. A lawyer can tell you if you have a case.
Do credit card companies have to follow usury law? No. Federal law governs credit cards and allows higher interest rates than Texas usury law. That’s why credit cards can charge 20, 25, or even 30 percent interest.
Is it ever criminal to charge usury interest? It can be, but it’s rare. Most usury violations are civil matters. Criminal charges only happen in serious cases with intentional violations.
Final Thoughts
Texas usury law is more flexible than you might think, especially if you’re borrowing for business. But consumer protections are still pretty strong if you’re a regular person borrowing money.
Here’s what matters most: know the 18 percent limit for personal loans. Understand that businesses have different rules. And if you think someone’s charged you illegal interest, you have options.
When in doubt, ask a lawyer. It might feel like overkill for a question about interest rates, but honestly, it’s worth it. Your finances depend on understanding these rules.
Stay informed. Stay safe. And remember, if something about a loan feels wrong, it probably is.