Interest rates are compensation for the time-value of money, and are calculated on judgments (the amount of money one party to a lawsuit is ordered to pay another party) based on the applicable state or federal statutes. There are often different interest rates set by law for prejudgment interest (the interest on the amount owed before the judgment) and post-judgment interest (the interest on the amount owed after the judgment). The calculation of prejudgment and post-judgment interest rates vary from state to state (and in federal court), and require a careful analysis of the statutes.
In Texas, interest rates on judgments are governed by state statutes, which set forth different rates for prejudgment and post-judgment interest. Prejudgment interest is designed to compensate a plaintiff for the loss of use of money from the time the loss occurred until the judgment is awarded. In Texas, the prejudgment interest rate is typically calculated at the rate of 5% per annum if not specified in a contract or at the rate specified in the contract if it is under 18%. Post-judgment interest is intended to encourage timely payment of the judgment amount and is calculated from the date of the judgment until the amount is paid. The post-judgment interest rate in Texas is determined by the Texas Finance Code and can vary, but it is generally set at the prime rate as published by the Federal Reserve, with a floor of 5% and a cap of 15% per annum. These rates are subject to change, and it is important to consult the current statutes or an attorney for the most up-to-date information.
