Penalty APR
Also called Default APR
A higher interest rate a credit card can apply after a serious late payment or other violation of the card terms.
What it means
A penalty APR is a raised rate, often near 30%, that replaces your normal APR after certain triggers such as a late payment or a returned payment. Not all cards have one, and the terms must be disclosed in the card agreement.
Federal rules limit how it works. A card can apply a penalty rate to an existing balance only if a minimum payment is more than 60 days late, and after you make six consecutive on-time payments, the issuer must review the account and generally restore the lower rate on that balance. For new transactions, a penalty APR can apply with advance notice and may last longer. A late payment can also end a promotional rate.
Example
Suppose a $4,000 balance at 20% APR costs about $67 a month in interest. If a 30% penalty APR kicks in, monthly interest rises to about $100, roughly $33 more each month on the same balance.
How it’s used
- Reading a card agreement before applying
- Understanding a sudden rate increase
- Recovering after a missed payment
Good to know
- If a payment is missed by mistake, calling the issuer quickly can sometimes get a late fee or rate increase reversed.
Related terms
Educational information only, not financial, tax or legal advice. Rules, limits and rates change; check the IRS, your lender or plan, or a qualified professional before acting.