(a) A loan contract under this subchapter may provide for an interest charge computed using the true daily earnings method or the scheduled installment earnings method that does not exceed the equivalent rate or effective return of the installment account handling charge for the original scheduled term of the loan.
(b) The principal balance of a loan contract authorized by this section may not include the acquisition charge, installment account handling charge, default charges, or deferment charges or the return check fees authorized by § 3.506, Business & Commerce Code.

(c) Interest may accrue on the principal balance from time to time unpaid at the rate provided for by the contract until the date of payment in full or demand for payment in full.
(d) A payment on a loan contract authorized by this section shall be applied to the borrower’s account in the following order or, at the lender’s option, under another method of applying a payment that is more favorable to the borrower:
(1) the straight line allocation of the acquisition charge using the original scheduled term of the loan based on the proportional scheduled payment that was paid or scheduled to be paid;
(2) default charges authorized by § 342.257;
(3) return check fees authorized by § 3.506, Business & Commerce Code;
(4) any other charges authorized by this subchapter;
(5) accrued interest authorized by this section; and
(6) principal.