What Does Default APR Mean?

A default annual percentage rate (APR), also called a penalty rate, is an interest rate applied to a credit card account if the cardholder defaults on the account.

Description

A default APR is a higher interest rate than the normal interest rate on a credit card. It is usually written into the terms of the credit card agreement as the prime rate plus a certain stated percentage.

Factors

When a cardholder defaults on his account, the remaining outstanding balance is charged a default APR. The default APR is placed in effect if the cardholder fails to make the minimum payment due or if the credit limit of the card is exceeded. Many terms regarding default APRs state that if the cardholder makes two late payments, the default APR is applied.

Details

The normal APR may resume depending on the terms of the agreement. Many times, once the default APR is applied, it continues until the balance is paid in full. Credit card companies are limited to the percentage rate they can charge. They must follow all federal and state laws regarding maximum interest rates.

References

• Card Ratings: Glossary
• Purdue University Extension: What is a Penalty APR on a Credit Card?