Penalty APR
What Is a Penalty APR?
A penalty APR is a higher interest rate that may apply to a credit card account after certain violations, such as missing payments.
It increases the cost of borrowing if the account becomes risky.
Penalty APRs are most common in credit cards and may be triggered by:
- 60+ day late payments
- Returned payments
- Exceeding credit limits (less common today)
Why Penalty APR Matters
Once applied, a penalty APR can significantly increase interest charges.
For example:
- Standard APR: 19%
- Penalty APR: 29.99%
That increase compounds quickly if balances remain unpaid.
Under federal regulations influenced by the Consumer Financial Protection Bureau, card issuers must clearly disclose penalty APR terms.
Penalty APR may be reduced after a period of consistent on-time payments, depending on issuer policy.
Penalty APR vs. Default Rate
Penalty APR → Credit card term
Default Rate → Broader loan term
Both increase cost after missed obligations.
FAQs About Penalty APR
How long does a penalty APR last?
Often at least six months, depending on behavior.
Does it apply to existing balances?
It may, depending on card terms.
Can I remove a penalty APR?
Sometimes, after consistent payments.
Related Terms
