What Is a Penalty APR?

If you pay your credit card statement late, there could be major consequences and it could be damaging to your credit One of the most serious problems that could happen due to a late payment is a penalty APR.

A penalty APR is a very high annual percentage rate that your credit card company will charge you if you do not pay your debt on time. Although a late payment is a common reason for a penalty APR, there are other possible triggers. In this guide, we will breakdown what a penalty APR is, how it iss triggered, and how to avoid it.

What is a Penalty APR?

Penalty APRs are higher interest rates that are charged if you miss a payment date. A penalty APR could range anywhere from 5% to 30%.

Penalty APRs will alter the original interest rate that you were paying on your credit card. They can even change a promotional 0% APR that you had on your card. The APR rate will apply to all the money you currently owe, as well as all of the future charges that you make on the card. Penalty APRs are usually triggered when you are very late on your payment. It will usually be 60 days.

Your card issuer could also impose a penalty APR for other violations of your cardholder agreement if you fail to make a payment, so it is imperative that you pay off your debt in full each month.

Specifics on How Penalty APRs work

Penalty APRs can range anywhere from 5% to 30% more, however, it depends on your credit card company. The new higher penalty rate will be applied to all your  current debts and any more charges you make after the 60 days of not paying. Penalty APRs can also apply for other reasons such as going over your credit limit or having a check returned.

If you will have at least one late payment that will result in a penalty APR, the card provider company must notify you regarding your statement.

How Long is a Penalty APR in Effect?

Penalty APRs will raise the interest rate on existing and future charges on your credit card. The length of time the penalty APR can apply will vary and depends on whether or not you already owed money or not from the time you triggered the Penalty APR.

If you do not pay late again, then the penalty APR will remain in effect for a minimum of at least 6 months. After the allotted penalty time, as long as you have kept your end of the cardholder agreement, your interest rate should return to the original rate.

However, due note that the card issuer can keep the penalty APR in effect indefinitely if there is still debt owed to the credit card company. This means that the Penalty APR will still apply on all future charges you make on your card.

Not all card issuers will continue to adhere to the penalty APR on future purchases, so be sure to read the fine print on your credit card agreement carefully or  check with your bank.

How Can You Avoid the Costs of a Penalty APR?

The easiest way to avoid  penalty APR is by paying off your credit card statement in full. If you happen to trigger a penalty APR on your credit card, here are some ways to avoid a higher penalty APR.

One option that you can do is to pay off the entire debt balance you owe and stop making future charges on the credit card. This way, you will not have to owe any more money on future charges.

If you are planning to use a personal loan to pay off your credit card debt to avoid the penalty APR, be sure to look for a personal loan with the lowest interest rate possible.

5 Tips for Avoiding Penalty APRs

1. Negotiate with your lender – Try talking with your credit card company to see if you can have a grace period if you are someone that misses payments often

2. Read your credit card agreement – Make sure that you read your card agreement and see all the details of having a card

3. Keep track of your credit card statements – One way to avoid making a late payment is reading every single statement you receive and paying them immediately after you read them.

4. Keep your credit card balances low – Do not charge more than you can pay off

5. Consider getting a credit card with no penalty APR – Use only credit cards that have no penalty APR if you miss payments often

Bottom Line

If you’re back on track making on-time minimum payments but you haven’t yet hit the six-payments mark, you may still be able to get your credit card company to review your APR and stop charging you the higher APR. If you’re concerned that the penalty APR is costing you too much, you can also consider transferring your balance to a zero-APR credit card.

In addition, we have a list of bank promotions to get some extra cash in your pockets today. You may also want to check out savings accounts if you want to get started on saving up money.