Penalty APR
Penalty APR refers to a higher interest rate that a credit card issuer may apply to your account if you violate certain terms of your credit card agreement, such as making late payments or exceeding your credit limit. This is evaluated within APR, Interest & Fees.
Plain-Language Meaning
This reflects a significant increase in the interest rate charged on your credit card balance as a consequence of specific negative actions, most commonly late or missed payments.
Practical Example
If you miss a credit card payment by more than 60 days, you may receive a notice that your interest rate has jumped from 18% to a penalty APR of 29.99%, making it more expensive to carry a balance.
What It Does Not Mean
Penalty APR does not refer to the standard purchase APR or other fees; it is a separate, higher rate triggered by certain violations of the card agreement.
How the System Uses It
The system evaluates your account activity for late payments or other breaches of terms and, if triggered, applies the penalty APR to new purchases, existing balances, or both, depending on the issuer’s policy.
Common Misconceptions
- “Penalty APR applies immediately after any late payment.” The penalty APR is typically applied only after a payment is more than 60 days late, though terms can vary.
- “Penalty APR lasts forever once applied.” The penalty APR may be reduced after a period of on-time payments, as required by federal regulations.
- “All credit cards have a penalty APR.” Not every credit card includes a penalty APR; terms are specified in the cardholder agreement.
Related Pages
Related Glossary Terms
FAQ
- Can a penalty APR be removed from my account? Yes, federal law requires issuers to review your account after six months and, if you have made on-time payments, the penalty APR may be reduced or removed.
- Does penalty APR apply to all balances on my card? It can apply to existing balances, new purchases, or both, depending on the card issuer’s policy and the terms of your agreement.