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What Is a Penalty APR? [Can You Afford Being Stung by This Cost?]

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Jessica Merritt
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Jessica Merritt

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Missing a couple of credit card payments will get you stuck with more than just a few late fees. In addition to late fees, your account may be hit with a penalty annual percentage rate (APR), which will increase the amount of interest you pay on any balance you carry.

Unfortunately, you’re most likely to be hit with this punitive APR when you’re already struggling to make payments, making it even more difficult to stay on top of your debt. And triggering a penalty APR can turn late payments into an even more expensive mistake because you’ll pay higher interest fees on top of other fees. Plus, a penalty APR could remain on your account for new charges.

When it comes to credit card penalty APRs, it’s all bad news — you just don’t want to get hit one, but fortunately, this type of APR is avoidable. 

Below, we’ll cover how to avoid penalty APRs and explore options if you’re already dealing with one.

What Is a Penalty APR?

It’s important to first define what a normal APR is: an APR is the yearly interest rate on your credit card, which you’ll be charged as an interest fee if you carry a balance from month to month. You’ll pay no interest when you pay your balance in full each month or have a 0% introductory APR.

A penalty APR is an interest rate — usually higher than your normal interest rate — that you pay as a penalty for violating your credit card’s terms. Usually, a penalty APR is triggered by missing a credit card payment by 60 days or more.

It’s common to see a credit card penalty APR of around 29.99%, which is significantly higher than the average credit card APR of ~19%. Generally, this higher APR is temporary and applies for at least 6 months once assessed, but if you continue to violate a card’s terms, the penalty APR will continue, too.

Penalty APRs are punitive and intended to discourage you from actions that trigger the penalty APR, such as late payment.

A penalty APR is not the same thing as a late fee — you’ll pay a penalty APR in addition to any late or returned payment fees.

What Triggers a Penalty APR?

Although it’s common to trigger a penalty APR with a late credit card payment, a few other actions could also hike your interest rate, depending on your credit card issuer’s policies. 

Typical penalty APR triggers include:

  • Missing a payment by 60 days or more
  • Returning a payment due to insufficient funds or a closed account
  • Charging over your credit limit

What’s the Difference Between Penalty APR vs. APR?

You might think of your credit card’s APR as only the one you pay for purchases. However, every credit card typically has multiple APRs, including a penalty APR, introductory APR, and cash advance APR. 

A penalty APR is one of the highest interest rates you’ll find in your credit card terms. And it can wipe out one of the best APRs out there: a 0% introductory rate.

Your regular APR is the one you normally pay for purchases, while a penalty APR is the APR that applies when you violate credit card terms. A penalty APR is often much higher than the standard APR for purchases.

Your credit card’s APR is usually variable and can change with market conditions. A penalty APR is also variable and it generally applies for 6 months unless you continue to trigger the penalty.

Hot Tip: See average APRs and more in the Upgraded Points APR guide.

How Much Can a Penalty APR Cost You?

$100 bills up close
Triggering a penalty APR will cost you. Image Credit: Pepi Stojanovski via Unsplash

A penalty APR can increase your interest fees significantly. And the higher your balance, the more it will cost you. 

Consider this scenario: your card’s purchase APR is 19.25% to 27.99% after the 0% introductory APR expires. If you trigger a penalty APR, your rate will be up to 29.99% and will vary based on the prime rate, which is the market interest rate credit card issuers use as a reference to set rates for cards and other financial products.

Let’s say you have a $2,000 credit card balance and pay it off over 6 months. At 19.25%, you’d have a monthly payment of $353 and pay $80 total in interest. At 29.99%, you’d pay $364 per month and a total of $124 in interest. That’s a difference of $44 in additional interest fees when the penalty APR applies, not including late fees or returned payment fees. If you triggered a penalty APR during your 0% introductory period carrying the same $2,000 balance over 6 months, you’d skyrocket your interest fees from $0 to $124.

Hot Tip: A penalty APR can wipe out any promotional rates on your account, such as a 0% introductory rate on purchases or balance transfers. That could catapult your rate from 0% to something much higher, like 29.99%!

Does a Penalty APR Affect Your Credit?

A penalty APR can be harmful to your credit. But usually, it’s not the penalty APR itself that affects your credit score, but the actions that led to you getting charged the penalty APR in the first place.

It’s often late payments and high credit utilization that trigger a penalty APR — and those are actions that can hurt your credit the most.

For example, if you trigger a penalty APR by missing your credit card payment by 60 days or more, your credit score will suffer because of the late payment, not necessarily the penalty APR.

If you continue to miss payments you’ll keep getting late payment marks on your credit report, which will only drive your score down more. Furthermore, your account could head into collections or be charged off, which would do even more damage to your credit rating.

Another scenario that could hurt your credit: If you go over your card’s credit limit and trigger the penalty APR you’ll have a very high credit utilization rate on that account. A high credit utilization rate is another factor that can drag down your credit score.

While late payments and high credit utilization are bad for your credit report, a penalty APR can hurt your credit further. 

When you’re charged a penalty APR, your credit card balance can grow larger with the increased interest fee. That can make it more difficult to make your minimum payment — so you might miss more payments. And it uses up more of your credit line, so you’ll increase your credit utilization if you can’t pay it down. Both of these factors can drag down your credit score.

Bottom Line: Making late payments or using all of your available credit can trigger a penalty APR, both of which can hurt your credit score.

How To Remove a Penalty APR

Usually, the best way to remove a credit card penalty APR is to wait it out and avoid re-triggering the penalty. For example, if you trigger the penalty APR by missing payments, you’ll need to make on-time payments for 6 consecutive months before the credit card issuer will assess your account to lower your APR.

If 6 months of a penalty APR is too much for you to manage, you have some options:

  • First, stop making new charges. You’ll pay the penalty APR on any transactions you carry as a balance month to month. 
  • Consider paying off your credit card. If you pay off your entire balance, you won’t pay interest charges at all.
  • Make larger payments, as that can also help manage how much interest you’ll pay. A smaller balance accrues less interest.
  • If paying off your credit card isn’t an option, consider getting a balance transfer credit card. These cards offer a lower APR, potentially even a 0% introductory rate, which means you won’t be racking up nearly as much interest charges while you pay off your balance.
  • Need to manage a large balance? A debt consolidation loan might be the long-term answer to avoiding a penalty APR.

Can You Negotiate a Penalty APR?

Woman talking on the phone
You can give negotiation a shot if you’re facing a penalty APR, but you probably just need to wait it out. Image Credit: Drazen via Adobe Stock

Triggering a penalty APR is usually considered a severe violation of a card’s terms, so your credit card issuer isn’t likely to budge on removing the penalty APR before it has to. Missing a payment for 60 or more days isn’t the same as forgetting to make a payment and taking care of it a few days later — that’s 2 months of not making a payment and a serious risk for the issuer as it indicates that you might not pay them at all.

Because a penalty APR typically only applies when you’ve made a violation, it’s best to stop a penalty APR before it starts. For example, if you miss a payment, make it up as fast as you can to avoid being 60 days late. Get caught up on the payment before the next billing cycle hits, and it won’t even show up on your credit report. You can also set up autopay on your card to help ensure you don’t miss a payment.

Went over your credit limit? Call your credit card issuer and talk about it — you might explain you had an unexpectedly large expense but can pay it off when your statement comes due. If you can, offer to pay the amount that’s over your limit while you’re on the phone.

You could also get in touch with the issuer if you made a payment but it was returned. You can explain if it was an accident and offer to quickly make the payment from an account that won’t bounce. 

While it’s not especially likely that your credit card issuer will offer leeway in these situations, it could help if you communicate and explain the circumstances that led to triggering the penalty APR. It’s also helpful if you’re otherwise a good customer with a history of on-time payments.

Does a Penalty APR Have To Last 6 Months?

Credit card issuers aren’t required to consider lowering your penalty APR until at least 6 months after it’s been instituted, but you can always try to get it lowered before that. Unfortunately, a penalty APR can continue indefinitely on new purchases at the issuer’s discretion.

If you’re generally a good customer and you’ve had a penalty APR on your account for a few months — but not the full 6 months yet — you could get in touch with your issuer and ask if they’ll lift it early and go back to your regular APR. There’s no guarantee, but it’s worth an ask!

You may see your credit card terms and conditions state that your penalty APR can continue indefinitely. That’s true, but there’s some fine print on that. According to the CARD Act, the credit card issuer is required to assess your account after 6 months and revert the APR for your existing balance back to the regular APR if you haven’t continued violating the terms. 

For example, if you triggered the penalty APR with a missed payment and make 6 consecutive on-time payments, your APR goes back to normal.

However, the CARD Act rule only applies to your existing balance. So even if the APR is rolled back after you make 6 months of on-time purchases, your credit card issuer can still use the penalty APR for new purchases. You can choose to not make new purchases on the account.

Bottom Line: A penalty APR is tough to shake off once it applies. You can wait it out and avoid triggering it anew or transfer your balance, but the best way to manage a penalty APR is to not get one in the first place.

Credit Cards With No Penalty APR

Nervous about the risk of triggering a penalty APR? You could choose a credit card that doesn’t have one. Some cards have a no-penalty APR policy, so you’ll avoid being penalized by a higher rate if you slip up when managing your account. 

Often, cards with no penalty APR also come with other features that offer some breathing room, such as no late fees or forgiveness for your first late payment. 

Consider these cards that have no penalty APR:

  • Apple Card: Apple Card takes it easy on fees with no penalty APR and no annual, late, returned payment, or over-the-limit fees.
  • BankAmericard® Credit Card: There’s no penalty APR with the BankAmericard and no annual fee, but you’ll pay up to a $40 late payment fee.
  • Citi Simplicity® Card: Pay no penalty APR, a $0 annual fee, and no late fees with the Citi Simplicity card.
  • Discover it® Cash Back Card: Yet another card that’s light on fees, the Discover Cash Back card has no penalty APR or annual fee. Plus, your first late payment fee is waived.

Hot Tip: Don’t mistake kindness for weakness. Even for cards that offer no penalty APR, you’ll still pay applicable late or returned payment fees along with interest on any balance you carry. And your account will go to collections or be charged off if you miss enough consecutive payments. 

Should You Get a Credit Card With No Penalty APR?

A credit card with no penalty APR can offer you a safety net, but it shouldn’t be the top feature you consider. You should plan to avoid late payments or other actions that could trigger the APR and instead prioritize features that could be more valuable such as no late fee, a 0% introductory APR, or rewards and benefits. 

But if you have a history of making late payments, a credit card with no penalty APR could be a good safeguard for you.

How To Avoid a Penalty APR

The best way to avoid a credit card penalty APR is to pay your bills on time from an account with enough funds to cover your payment. 

That said, everyone makes mistakes. There are ways to get ahead of situations that could lead to a penalty APR. 

Try these tips to avoid triggering a penalty APR on your credit card:

  • Set up automatic minimum payments. Most credit cards allow you to set up an autopay option. You can choose to autopay the minimum, a specific amount, or your full balance. Even if you plan to pay your full balance by the due date, it doesn’t hurt to set up an autopay for the minimum payment just in case you forget.
  • Have some cushion in your checking account. When you set up credit card payments, use a checking account you know has enough available funds to cover at least your minimum payment. That way, you can avoid a returned payment.
  • Sign up for payment alerts. Need help remembering to make your credit card payment? Credit cards typically offer payment alerts via text, email, app, or all of the above. You can get a reminder when your bill is due so you can make payments on time. Or if you miss a payment, you’ll get an alert to make the payment as soon as you can — before it leads to a penalty APR.
  • Pay your bills on the same days each month. Get in the habit of paying your bills on the same days every month, and it will be easier to remember to take care of your credit card bills before they’re late.
  • Ask to move your payment date if it’s problematic. If you can’t make payments on time because the due date doesn’t work for you, talk to your credit card issuer. You may have the option to move your payment date to a new one that works better for you.
  • Make a plan for unmanageable payments. If you have a credit card balance you’re struggling to handle, take action. You may have options such as a balance transfer credit card or personal loan that can make tackling your credit card debt easier.
  • Consider a card with no penalty APR. Some credit cards don’t charge a penalty APR, which could come in handy if you’re prone to triggering the penalty.
  • Understand the fine print. Read your cardholder agreement so you know the details of the penalty APR. Find out what triggers it, when it applies, and for how long.

Final Thoughts

Racking up a penalty APR on your credit card is bad news no matter how you look at it. You’re probably looking at a 29.99% APR for at least 6 months on top of late payment or returned payment fees. And the penalty APR could continue indefinitely on new charges. 

It can be tough to break free of a penalty APR, so take precautions to avoid triggering a penalty APR, or choose a credit card with no penalty APR as a feature. If you’re facing a penalty APR, manage or transfer your balance as best you can so you pay less interest.

The information regarding the Apple Card was independently collected by Upgraded Points and not provided nor reviewed by the issuer.
The information regarding the Citi Simplicity® Card was independently collected by Upgraded Points and not provided nor reviewed by the issuer.
The information regarding the Discover it® Cash Back Card was independently collected by Upgraded Points and not provided nor reviewed by the issuer.

Frequently Asked Questions

What is a penalty APR for credit cards?

A credit card penalty APR is a punitive interest rate that’s higher than your regular APR. It applies when you violate certain credit card terms such as missing a payment for 60 days or more, making a returned payment, or going over your credit limit. You’ll typically be assessed a penalty APR for at least 6 months, but it could continue indefinitely on new charges.

Why does penalty APR matter?

A penalty APR is significant because it can greatly increase the interest charges you pay. If you carry a balance, you’ll pay more in interest charges every month the penalty APR applies.

Does APR only matter if you pay late?

APR matters if you carry a credit card balance whether you pay late or not. While your APR can get worse if you pay late — such as when you trigger a penalty APR — you’ll pay interest charges on any balance you carry to the next statement period no matter when you make your payment. However, APR doesn’t matter if you pay your bill in full and on time each month, since interest charges won’t apply in that scenario.

Does APR matter if you pay early?

If you pay your credit card bill in full and on time, your APR won’t matter because you won’t be charged interest. But if you carry a balance month to month, you’ll pay interest whether you pay early or on time. Pay too late too often and you’ll pay a penalty APR.

What happens if you don't pay APR?

Unless you avoid interest charges entirely, you can’t choose to not to pay interest on a credit card. Interest charges apply to your credit card balance and aren’t considered separately from purchase transactions.

You’ll need to pay any interest charges you accrue each month, making at least the minimum payment on your full balance including interest fees to avoid late fees and a penalty APR.

How can you get the penalty rate lowered after it has taken place?

Getting a penalty APR lowered early isn’t usually an option. You can ask your credit card issuer to help out, but you might not get the help you ask for. Generally, you’ll need to wait 6 months and avoid triggering the penalty APR again. If you triggered the penalty APR with a late payment you’ll need to make 6 consecutive on-time monthly payments to have your issuer potentially lift the penalty APR.

Are penalty APRs are different from late fees?

Penalty APRs are different from late fees. A late fee will apply as soon as your payment becomes late. If your payment is late enough that you trigger the penalty APR, you’ll pay the penalty APR in addition to the late fee.

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About Jessica Merritt

A long-time points and miles student, Jessica is the former Personal Finance Managing Editor at U.S. News and World Report and is passionate about helping consumers fund their travels for as little cash as possible.

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