Key takeaways
- A penalty APR is a higher interest rate a card company may charge after you pay late.
- For existing balances, the rate can generally go up only if your minimum payment is more than 60 days late.
- Card companies must give you 45 days’ notice before raising your rate on new purchases.
- If your rate went up because of a late payment, six on-time payments in a row can bring your old rate back on existing balances.
- Call your card company and ask; sometimes they’ll lower it sooner.
One late payment can cost more than a late fee. Many credit cards have a penalty APR, a much higher interest rate that can kick in after you pay late. Federal rules limit when and how it can apply, and there’s a clear path back to your normal rate. Here’s how it works.
What a penalty APR is
Your card agreement lists your regular APR and, on many cards, a higher penalty APR. The penalty rate is meant to discourage late payments, and it can make carrying a balance much more expensive. Look for it in the rate table of your card agreement or on your statement.
When it can apply
According to the CFPB:
- On existing balances, a card company can generally raise your rate only if your minimum payment hasn’t been received within 60 days after the due date.
- On new purchases, card companies must give you 45 days’ advance notice before an interest rate change.
So a payment that’s a few days late usually won’t change the rate on what you already owe, but it may still bring a late fee and, after notice, a higher rate on new purchases.
How to get your old rate back
The CFPB explains two protections:
- Six on-time payments. If your rate on existing balances went up because of a late payment, the card company must restore your old rate after you make six consecutive on-time minimum payments.
- Regular reviews. Card companies must review rate increases at least every six months, and may lower the rate if it’s higher than they’d offer today.
Steps to take now
- Get current. Make at least the minimum payment as soon as you can.
- Set up automatic payments for at least the minimum so it doesn’t happen again. A late payment can also show up on your credit report; see how long late payments stay on your credit report.
- Call your card company. Ask whether they’ll remove the penalty rate or waive the late fee, especially if you’ve had a good record. It costs nothing to ask.
- Track your six payments. Mark them on a calendar. If your rate isn’t restored after six on-time payments, call and ask why.
- Check your statement. Make sure the rate change matches the notice you received. If you think it’s wrong, contact your card company, and if needed submit a complaint to the CFPB.
If you’re struggling to make payments
A penalty rate makes a hard situation harder. Don’t wait until you’re 60 days behind:
- Ask about a hardship plan. See how to ask your card company for a hardship plan.
- Look at lower-rate options like a balance transfer or consolidation loan, if your credit allows.
- Talk to a nonprofit credit counselor through the NFCC about a debt management plan.
To understand how a higher rate changes what you pay each month, read how credit card interest works.
The bottom line
A penalty APR can make your card much more expensive, but federal rules limit when it applies and give you a way back. Pay on time for six months in a row, ask your card company to lower it, and get help early if payments are becoming hard to keep up with.
Sources: CFPB: when can my credit card company increase my interest rate · CFPB: what is a grace period for a credit card