Texas Finance Code - FIN § 342.002. Interest Computation Methods

(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.

(c) For the purposes of Subsections (a) and (b), the daily rate is 1/365 th of the equivalent contract rate.

(d) Interest under the scheduled installment earnings method or true daily earnings method may not be compounded.