Texas Loan Agreement
A Texas loan agreement sets the loan terms and caps most private-loan interest: up to 18 percent a year by written agreement, or 6 percent if left blank.
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Introduction
Every loan agreement is a signed record of money lent and a promise to repay it with interest, and Texas holds a private loan to 10 percent a year unless the writing sets a higher rate, up to the 18 to 24 percent Chapter 303 ceiling. In Texas the interest you can charge is limited. If the parties do not agree on a rate, the legal rate is 6 percent per year, beginning on the 30th day after the amount is due (Texas Finance Code Section 302.002). The general maximum is 10 percent per year unless the law provides a higher ceiling (Section 302.001(b)), and it does: the parties to a written agreement may agree to a rate up to the Chapter 303 weekly ceiling, which is at least 18 percent and no more than 24 percent per year for a personal loan (Sections 303.002 and 303.009). So a private lender who wants to charge more than 10 percent needs a written agreement and can then go up to 18 percent, and as high as 24 percent when market rates are high. Making an occasional private loan does not by itself require a license: a regulated-lender license from the Office of Consumer Credit Commissioner is required only of a person engaged in the business of making consumer loans over 10 percent for personal, family, or household use (Section 342.005). Charging above the lawful ceiling is usurious and carries heavy penalties, including three times the excess interest and, if the rate is more than twice what is allowed, forfeiture of the principal (Chapter 305). Once the rate is set, a sound Texas loan agreement names the parties, the principal, the interest rate as a number, the repayment schedule, any late fee, and what counts as default. It should include an acceleration clause, which lets the lender demand the entire unpaid balance at once if the borrower misses payments. Put the terms in writing: a suit to collect a debt must be filed within four years (Section 16.004), and a clear signed agreement is what protects both sides if the loan is later disputed. DocDraft builds your Texas loan agreement from your facts, with attorney review available before you sign.
Key Things to Know
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A loan agreement records who borrowed how much, at what interest, on what schedule, and what counts as default. In Texas the recorded rate must stay within the general 10 percent limit unless the signed agreement reaches for the higher Chapter 303 ceiling.
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Texas limits the interest on a private loan. The general maximum is 10 percent per year unless the law allows more (Texas Finance Code Section 302.001(b)). The parties to a written agreement may agree to a higher rate up to the Chapter 303 ceiling, which is at least 18 percent and no more than 24 percent per year for a personal loan (Sections 303.002 and 303.009). A commercial loan may reach 28 percent.
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If a loan agreement does not state a rate, Texas sets the legal rate at 6 percent per year, beginning on the 30th day after the amount is due (Texas Finance Code Section 302.002). To charge more than that you must state a rate in a written agreement.
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You do not need a license to make an occasional private loan. A regulated-lender license from the Office of Consumer Credit Commissioner is required only of a person engaged in the business of making consumer loans over 10 percent for personal, family, or household use (Texas Finance Code Sections 342.005 and 342.051).
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Charging above the lawful ceiling is usurious and expensive. A usurious lender is liable for three times the excess interest (or a lesser statutory amount) under Texas Finance Code Section 305.001, and if the interest charged is more than twice what is allowed the lender forfeits the principal and all interest and charges (Section 305.002).
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Put the loan in writing and state the rate as a number. A written agreement is what lets you charge interest above the general 10 percent maximum, up to the Chapter 303 ceiling (Texas Finance Code Section 303.002). Keep any late fee a reasonable estimate of your real costs, because charges tied to the loan can count toward interest for the usury limit.
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Spell out default and acceleration, and keep the signed agreement. Define default as a missed payment past a stated grace period, and include an acceleration clause so the lender can demand the entire unpaid balance at once. A suit to collect a debt must be filed within four years (Texas Civil Practice and Remedies Code Section 16.004).
Key decisions before you file
Before you file a Loan Agreement in Texas, a few decisions shape the document: which option to choose and what each one means. The Loan Agreement guide walks through them.
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Texas Requirements for Loan Agreement
Maximum Interest Rate (Usury Ceiling)
Texas limits the interest on a private loan. The general maximum is 10 percent per year unless the law allows more (Texas Finance Code Section 302.001(b)). The parties to a written agreement may agree to a higher rate up to the Chapter 303 ceiling, which is at least 18 percent and no more than 24 percent per year for a loan that is not a commercial loan (Sections 303.002 and 303.009). State the rate as a number and keep a personal loan at or below 18 percent unless a higher ceiling clearly applies.
Legal Rate When the Contract Is Silent
If a loan agreement does not state an interest rate, Texas fixes the legal rate at 6 percent per year, beginning on the 30th day after the amount is due (Texas Finance Code Section 302.002). To charge more than that, up to the general 10 percent maximum or the higher Chapter 303 ceiling, the parties must contract in writing for the rate. Always write the agreed rate into the agreement so the 6 percent legal rate does not apply by accident.
Lender Licensing (Regulated Consumer Loans)
A regulated-lender license from the Office of Consumer Credit Commissioner is required only of a person engaged in the business of making, transacting, or negotiating consumer loans that charge more than 10 percent per year for personal, family, or household use (Texas Finance Code Sections 342.005 and 342.051). An individual making an occasional private loan is not in the business of lending and does not need a license. If you lend money repeatedly as a business, confirm whether you must be licensed before you lend.
Usury Penalties Are Severe
Charging above the lawful ceiling is usurious and costly in Texas. A usurious lender is liable to the borrower for the greater of three times the excess interest or a lesser statutory amount (Texas Finance Code Section 305.001), and if the interest charged is more than twice the amount allowed the lender additionally forfeits the principal and all interest and other amounts charged (Section 305.002). Keep any private personal loan at or below 18 percent and never charge interest above the Chapter 303 ceiling.
Late Fees and the Usury Ceiling
Texas does not set a flat statutory late-fee cap for a private, non-commercial loan, so a late charge should be a reasonable estimate of your actual costs from a late payment. Keep it modest: a charge tied to the loan can be counted toward interest for the usury limit, so an aggressive late fee combined with the stated rate can push the loan over the Chapter 303 ceiling and trigger the Chapter 305 penalties. Set any late fee as a reasonable estimate of real costs, not an arbitrary penalty.
Put the Loan in Writing
A loan need not be written to be enforceable in Texas, but writing it down is strongly advised. A written agreement is required to charge interest above the general 10 percent maximum, because only the parties to a written agreement may agree to a rate up to the Chapter 303 ceiling (Texas Finance Code Section 303.002). A signed agreement also proves the amount, the rate, and the terms if the loan is disputed. Have both parties sign and date the agreement and keep a copy.
Default and Acceleration
Define default clearly, usually a payment missed past a stated grace period, a broken promise in the agreement, or the borrower insolvency. Include an acceleration clause so that on default the lender may declare the entire unpaid balance of principal and accrued interest immediately due. Stating any required notice and cure period avoids disputes about whether acceleration was proper.
Time Limit to Sue on the Debt
A lawsuit to collect on an unpaid loan must generally be filed within four years in Texas, running from the day the cause of action accrues, such as the default or the last payment (Texas Civil Practice and Remedies Code Section 16.004(a)(3)). Keeping a signed written agreement makes the amount, the rate, and the default date easy to prove, so you are in the strongest position to collect within that four-year window.