In Houston, a peer-to-peer loan falls under the Texas Finance Code, which sets 10% a year as the default maximum rate, while the OCCC licenses professional lenders and Texas levies no state income tax on individuals.
Texas Finance Code: 10% unless a statute says otherwise
Chapter 302 of the Texas Finance Code sets 10% a year as the maximum rate on a loan, unless another legal provision allows more. The optional ceilings in Chapter 303 mostly concern specific contracts. A Katy resident lending to a neighbour should stay below it.
The OCCC, regulator of consumer lenders
The Office of Consumer Credit Commissioner issues licences to Texas lenders, pawnshops and credit access businesses, and it also handles complaints. Any lender approaching Houston residents without an OCCC licence that can be looked up deserves the greatest suspicion before any money changes hands.
Payday loans and the Houston city ordinance
Like other Texas cities, Houston has adopted an ordinance regulating the payday and auto title loans offered by credit access businesses. These products remain very expensive, which leads some families to prefer a written personal loan from a private lender within their own circle.
The Texas homestead shields the family home
The Texas Constitution strongly protects the homestead: an ordinary creditor cannot force the sale of a primary residence over an unsecured debt. A private loan secured on the house follows strict rules, so have a Texas attorney check the arrangement before anyone signs it.
No state tax on interest income in Texas
Texas does not levy a personal income tax. A Houston lender therefore reports interest only to the IRS, on Form 1040, the federal individual return. Our page on taxation of loans between individuals sets out the general principles that apply in most countries.
Oil cycles and advances between co-workers
Houston's economy relies heavily on energy, petrochemicals and the Texas Medical Center. When layoffs sweep through the oil sector, cash advances between colleagues multiply. Set a realistic due date that does not hinge on a bonus or on being rehired.
Hurricanes Harvey and Beryl: post-disaster loan scams
After Harvey in 2017 and Beryl in 2024, fake lenders offered quick repair loans in exchange for upfront processing fees. Our page on the fraudulent private lender explains how to recognise these offers before you send a single dollar to anyone you have never met.
Nigerian, Vietnamese and Latin American communities
Houston is home to a large Nigerian community, a strong Vietnamese population around Bellaire Boulevard and many Mexicans and Central Americans. Rotating savings groups, tandas and transfers to Lagos or San Salvador should always go through licensed agencies and leave a written record.
Harris County justice court for claims up to $20,000
In Texas, justice courts decide small claims of up to 20,000 dollars, and no attorney is required. Harris County has many precincts: file the claim in the one covering the borrower's home address, attaching the signed contract and proof of every payment made.
Beware of fake notarios
In Texas a notary public is not a lawyer and cannot give legal advice, even when calling themselves a notario. Spanish-speaking families in Gulfton or the East End are frequent targets. See our page on the fake notary loan scam for warning signs.
Reporting a loan scam in Texas
The Consumer Protection Division of the Texas Attorney General takes complaints, as does the OCCC for licensed lenders. Online fraud can also be reported to the FBI IC3 and the FTC. Alert your bank quickly so it can attempt to recall the wire transfer.
How Houston compares with other major cities
Like New York, Houston has no cap as low as the one in California. To compare with the Mexican border region, read our page on the peer-to-peer loan in Monterrey or our general guide to lending between individuals across the United States.
Lending to a relative in Houston, step by step
- Check that the rate does not exceed 10% a year, unless a Texas attorney confirms a legal exception applies.
- Draft a signed promissory note in English, with a Spanish or Vietnamese translation if the borrower asks for one.
- Avoid securing the loan on the borrower's primary residence without legal advice, because of the homestead protection.
- Pay the money by bank transfer to an account in the borrower's name and keep the confirmation.
- Report the interest received to the IRS; Texas requires no state income tax return.
- Report any fraud to the Texas Attorney General, the OCCC or the FTC.
Financial benchmarks for a Houston loan
| Item | Level | Note |
|---|---|---|
| Default maximum rate | 10% a year (indicative) | Chapter 302 of the Texas Finance Code |
| State tax on interest | None | Only federal income tax applies |
| Justice court limit | 20,000 dollars (indicative) | Harris County and the rest of Texas |
| Payday loan from a credit access business | Very high cost | Regulated by the OCCC and the city |
| Fees paid to a fake lender | Money rarely recovered | Report to the Attorney General |
Paperwork to prepare in Houston
- Texas driver license, Texas ID or passport
- Signed and dated promissory note
- Repayment schedule in dollars
- Proof of the bank transfer
- Proof of income, such as a payslip from an energy company or hospital
- Receipts from a licensed agency for any transfer abroad
Bad habits to avoid in Houston
- Accepting a post-hurricane repair loan from a stranger who demands fees payable through Cash App before releasing any money.
- Taking the borrower's house as collateral with a simple handwritten note, ignoring the protective rules of the Texas homestead.
- Handing a tanda or rotating savings pot to an organiser met in a WhatsApp group without knowing their real identity.
- Paying a notario to legalise a loan, even though a notario has no power to give legal advice in Texas.
- Setting a 20% rate between friends without checking the limits laid down in the Texas Finance Code.
Houston answers on lending between individuals
Do I need to report interest from a loan to a friend to the State of Texas?
Not at state level, since Texas has no personal income tax. The interest is still taxable at federal level, however, and must appear on the Form 1040 return you file with the IRS for the year it was received.
Can a lender seize my Houston home over a personal debt?
In principle no, if the house is your homestead and the debt is not secured in the forms set out by the Texas Constitution. Exceptions exist, notably for property taxes and certain mortgage loans. Consult an attorney before signing any security agreement.
How can I check a lender who claims to be licensed in Texas?
Search for the name in the licence database of the Office of Consumer Credit Commissioner and compare the address and number shown. A licence that cannot be found, contact only through WhatsApp or a request for upfront fees is reason enough to refuse.
Where can I get free legal help in Houston?
Legal aid organisations and the clinics run by Houston law schools assist low-income households. Staff at the Harris County justice courts can also explain the procedure, although they cannot advise on the merits of the dispute itself.