Texas Finance Code 342.002 – Interest Computation Methods
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(a) The scheduled installment earnings method is a method to compute an interest charge by applying a daily rate to the unpaid balance of the principal amount as if each payment will be made on its scheduled installment date. A payment received before or after the due date does not affect the amount of the scheduled principal reduction.
(b) The true daily earnings method is a method to compute an interest charge by applying a daily rate to the unpaid balance of the principal amount. The earned finance charge is computed by multiplying the daily rate by the number of days the principal balance is outstanding.
Terms Used In Texas Finance Code 342.002
- Contract: A legal written agreement that becomes binding when signed.
- Finance charge: The total cost of credit a customer must pay on a consumer loan, including interest. The Truth in Lending Act requires disclosure of the finance charge. Source: OCC
(c) For the purposes of Subsections (a) and (b), the daily rate is 1/365th of the equivalent contract rate.
(d) Interest under the scheduled installment earnings method or true daily earnings method may not be compounded.