As far as installment loans are concerned, laws and regulations in the state of Texas are quite relaxed. This is why many subprime lenders have set up shop in the state, and business is flourishing. But this also means that such lenders charge high-interest rates.
If you are interested in getting an installment loan in Texas then you should be aware of laws that govern installment loans. This will not only give you a fair idea of what you can expect but also prevent you from being exploited.
The laws that apply to lenders depends on how they are licensed. The loans offered by lenders can either come under the purview of consumer loans that are governed by the Office of Consumer Credit Commissioner or lenders can be licensed as Credit Access Businesses (CAB).
Installment loans can come under the jurisdiction of both types of regulations.
Consumer loans come under the purview of Title 4 Subtitle B Chapter 342 and have a maximum loan term limit mandated by the state. The maximum limit for loan terms are:
- 37 months for loans less than $1,500
- 49 months for amounts that fall between the range of $1,500 and $3,000
- 60 months for all amounts greater than $3,000
Interest Rate Allowed
It is pertinent to note that consumer loans do have a maximum cap on their interest rates. If loans are not collateralized by the property, then there are three types of interest rates that can be charged.
The first is add-on interest rates:
- On the first $2,010 of a loan, the APR (Annual Percentage Return) must be 18% or lower
- On amounts between $2,010 and $16,750, the APR must be 8% or lower
Secondly, simple interest rates that have a cap between the range of 18% to 24% APR.
Thirdly, Texas also has split simple income rates, these are also known as three-tiered interest or graduated rates. The cap on these rates are:
- On the first $3,350, the APR must be 30% or lower
- On amounts between $3,350 and $7,035, the APR must be 24% or lower
- On amounts between $3,350 and $16,750, the APR must be 18% or lower
Administrative fees allowed by Texas laws are $100 over 180 days or once in 365 days if the lender charges split interest rates mentioned above. All other fees are prohibited.
Irregular payment structures are allowed for consumer loans. Secondly, according to the statutes, lenders can charge prepayment penalties. However, you can easily find a trustworthy lender that doesn’t charge such penalties. Loan splitting is also prohibited under this statute.
Furthermore, for consumer loans, the administrative rule requires lenders to consider the financial condition of borrowers and their ability to repay the loan.
Credit Access Business
Under Texas Laws, lenders can also register themselves as Credit Access Business, and most probably this is how most installment loans and payday loans will be registered. The maximum limit allowed under this statute is:
- Less than or equal to $1,340
The maximum tenure allowed is:
- For loan amounts less than or equal to $100, one month for every multiple of $10 or six months (whichever is less)
- For loan amounts greater than $100, one month per every multiple of $20.
Interest Rates Allowed
There is No Limit on interest rates under this statute, however, acquisition charges allowed are:
- If the loan amount is less than $30 then 20% of the loan amount
- If the loan amount is between $30 and $100, 10% of the loan amount can be charged.
- If the loan amount is between $100 and $1,340 then 10% of the loan amount or $100 (whichever is less)
Fees allowed under this statute depend on the loan amount. The loan amount and respective fees are:
- Less than or equal to $35 = $3
- Between $35 and $70 = $3.50
- Between $70 and $100 = $4
- Greater than $100 = $4 per month for each $100
All other fees are prohibited.
Under this statute, balloon payments or irregular payments are not allowed. Single payment, weekly, biweekly or semimonthly installments are allowed.
Prepayment is allowed and penalties on prepayments cannot be charged. Furthermore, all fees that are not earned as a result of prepayment must be returned by the lender.
Furthermore, like consumer loans, the administrative rule requires the lender to consider the financial condition of borrowers and their ability to repay the loan. Loan splitting is disallowed as well.