Penalty APR Definition: What You Need to Know

So what is a definition of a penalty APR? It does seem a bit complicated but in reality, it is not. Penalty APR, short of penalty annual percentage rate, is a high-interest rate that credit card companies tend to charge on your account if you make a late payment. In this article, we will discuss more about APR and what you can do to avoid it.

Sometimes penalty APR can be as high as 29.99%! That’s almost 3 times the average interest rate of 12%. So, if you have a balance of $1,000 on your credit card and you make a late payment, you could be charged $299 in interest for that month. That means you really shouldn’t be missing your payments.

If you carry a balance on your credit card, you may be charged interest on that balance. The interest rate you are charged is called the annual percentage rate (APR).

That being said, your APR can change over time, and one type of change is called a penalty APR. A penalty APR is an interest rate that’s charged to your account if you miss a payment or make a late payment. Penalty APRs are generally much higher than your regular APR, so it’s important to understand how they work and how to avoid them.

They can range from around 20% to 30%, which is much higher than the average credit card APR of 15%. That means if you have a balance of $1,000, you could be paying $200-$300 in interest every year just for making a late payment. And if you keep missing payments or making late payments, your penalty APR could become permanent, and then you really are in a problem.

So is there any way of avoiding Penalty APR? The best way to avoid penalty APR is to always make your credit card payments on time. The most common way and the best way is to set up automatic payments if possible, so you don’t have to worry about forgetting.

And if you do miss a payment, you should not be worried, because most penalty APRs in the begging are small in price, the problem only occurs when you stack up those late payments. And that’s when you should worry about the penalty APR.

What Exactly Is a Penalty APR?

We have mentioned some basic information on penalty APRs and APRs in general, but what does it all mean, what is the meaning of a penalty APR?

When you carry a balance on your credit card, you are typically charged interest on that balance. The interest rate that you pay is called the Annual Percentage Rate (APR).

If you make a late payment or miss a payment altogether, your credit card issuer may charge you a higher interest rate, which is called a penalty APR or a credit card penalty APR. And as you already know they are sometimes really high, a penalty APR can be as high as 29.99% and is usually applied to your entire balance, not just the portion of your balance that you missed payments on.

And to top it all off, a penalty APR can last for years, so it’s important to try to avoid triggering one. You can do this by always making your credit card payments on time and in full. If you are worried about missing a payment, consider setting up automatic payments from your bank account so that your credit card bill is paid automatically each month.

It is a recommended thing to do, but we are aware that sometimes payments can’t be done and have to be done later.

How Does a Penalty APR Work?

When you use a credit card, you are agreeing to pay the company back for any money that you borrow. Most cards have a standard APR, which is the interest rate that you will pay on any outstanding balance. However, some cards also have a penalty APR.

A penalty APR is an interest rate that is charged on your outstanding balance if you make a late payment or violate the terms of your agreement in some other way. The penalty APR is usually much higher than the standard APR, so it can end up costing you a lot of money if you are not careful.

There are a few ways to avoid paying a penalty APR. First, make sure that you always make your payments on time. Second, read the terms of your agreement carefully so that you understand what could trigger a penalty APR. And finally, if you do end up with a penalty APR, try to negotiate with your credit card company to get it lowered back to the standard rate.

Try doing the last one as soon as possible. Don’t wait or it to stack up as it’s easier to make them lower in the beginning.

What Is the Cost of Penalty APR?

The cost of penalty APR can be significant. If you are charged a penalty APR, your interest rate will increase, and you will have to pay more money in interest charges.

This can add up quickly, and you may end up paying hundreds or even thousands of dollars more in interest charges over the life of your loan. You also need to remember that the cost of the penalty APR can be as high as 29%.

Because of that, make sure to always keep track of your bills and if you can, always pay them on time.

How Long is a Penalty APR in Effect?

A penalty APR is an interest rate that is charged to your credit card account if you make a late payment. The penalty APR can be as high as 29.99% and is usually applied to your account for six months.

If you have a balance on your account when the penalty APR is applied, you will be required to pay interest on that balance at a higher rate. With that said, you also need to be aware that it can last even longer than six months.

In some cases, it can even last for a year. That is why you need to be very careful when it comes to this type of APR.

What Should You Do If You Are Charged a Penalty APR?

You don’t need to worry because there are a few ways to avoid penalty APRs even when you do a late payment.

If you are charged a penalty APR, the first thing you should do is contact your credit card issuer to try to negotiate a lower rate. If that is not possible, you should look for another credit card with a lower APR.

There are many cards available that have much lower rates than the average penalty APR. Finally, if you are unable to find a new card or negotiate a lower rate, you should try to pay off your balance as quickly as possible to avoid paying high interest-charges. Because if they stack up they can be really troublesome.

How to Avoid Penalty APR

When you carry a balance on your credit card, you typically have to pay interest on that balance. If you make a late payment or miss a payment, your credit card issuer may charge you a penalty APR.

Penalty APR is a higher interest rate that your credit card issuer can charge you if you violate the terms of your credit card agreement. For example, if you make a late payment, your issuer may raise your APR to the penalty rate. The penalty rate is usually much higher than the regular APR – often as much as 30% and it can last for months or even years.

If you don’t want to be charged a penalty APR, there are a few things you can do:

• Make sure you always make your payments on time.
  Set up automatic payments if needed so you never miss a due date. You can do this online or by contacting your bank.
• If you know you are going to be unable to make a payment, contact your issuer ahead of time and ask for an extension.
  They do seem scary but, most issuers will be happy to work with you and avoid charging a penalty APR.
• Read the terms of your credit card agreement carefully so you understand when a penalty APR may be applied.
  And if you can’t understand something like many couldn’t understand what penalty APRs are, try Googling them to make them understandable. Because doing so you can make your life and use of credit cards so much easier.

Following these easy steps, you can be sure that you will avoid getting the penalty APR. And in case you already have one, these steps can help you manage it.

Bottom Line

So as you see penalty APRs are a pain in the ass, but like many things they can be avoided, so you should not worry as long as you are paying your bills on time.

Even if you sometimes miss a payment there should not be any high penalties or at least not in the first few missed payments. When you go around shopping and spending, try not to spend it all, because you might end up paying more later down the road if you get a penalty APR.