Penalty APR

What Is a Penalty APR?

The penalty APR on a credit card is a high interest rate that kicks in when you don’t pay the bill on time, including when your payment is returned. Your credit card company can apply this “default” rate to future purchases (with 45 days’ notice) after even a single missed payment. They can only apply it to your entire balance if you are 60+ days delinquent, though.

Key Things to Know About Penalty APRs

• Average penalty APR: The average penalty APR in 2025 is 27.46%, according to WalletHub’s Credit Card Landscape Report.
• Alternate name: The penalty APR is also known as the default
• Consumer vs. business cards: The rules for when the penalty APR applies are different for general consumer credit cardsand small business credit cards. The latter were excluded from CARD Act protections. In other words, business card issuers can change your APR at any time.
• How to avoid accidentally triggering it: Sometimes, people are late on payments simply because they forget to make them. Setting up autopay from a checking account can solve this issue, as long as you have enough money in the account.
• How to reset it: Your issuer will restore your regular APR once you’ve made six consecutive payments on time.
• First-year exception: During the first year your account is open, your credit card company won’t be able to apply a penalty APR to either future purchases or your existing balance until you’re 60 days delinquent.
• Other situations where it may apply: Your issuer might apply the penalty APR if you go over your credit limit or for other reasons listed in your card’s terms and conditions.

Below, you can learn more about how penalty APRs work and how to avoid them.

How Penalty APRs Work

Penalty APRs essentially work in two steps. At first, they apply only to future purchases, but if you become 60 days delinquent, they can apply to your entire credit card balance. Unfortunately, it takes a lot more time to undo a penalty APR than it does to trigger one.

When a Penalty APR Applies to New Purchases

If you miss a single payment, your credit card’s issuer can apply the penalty APR to future purchases. In addition, once your account has been open for at least 12 months, credit card companies can increase your interest rate for future transactions for any reason.

Notification Requirement for Rate Increases

If the credit card company changes the interest rate that applies to future transactions, the CARD Act requires it to send you a notice specifying the reason for the rate increase 45 days in advance. The rate increase can apply to purchases made 14 days after the notice was sent, though it won’t take effect until the 45-day mark, so you have a chance to pay the bill and avoid the penalty APR.

When a Penalty APR Applies to Your Entire Balance

The only time a credit card company can apply the penalty APR to your entire balance (both existing debts and future transactions) is if you become 60 days delinquent in making a minimum payment. That means you’ve missed two due dates.

How Long Does a Penalty APR Last?

Once the rate is increased on an existing balance because you were 60 days delinquent, the credit card company must move you back down to your non-penalty APR once you have made the next six consecutive payments on time. By law, credit card companies must always re-evaluate a rate increase on existing balances every six months and, if appropriate, reduce the rate within 45 days after completing the evaluation.

This rule does not apply to future purchases. Your credit card issuer may choose to leave the penalty APR in place even after they’ve returned the rate on your existing balance to the regular APR.

This content is not provided, commissioned or endorsed by any issuer. WalletHub independently collected information for some of the cards on this page.

How to Avoid a Penalty APR

Set Up Automatic Payments

You can avoid a penalty APR and protect yourself from the late fees and credit score damage associated with missed payments, by setting up automatic payments from a checking account each month. This arrangement is called ACH or automatic bill pay.

Avoid Carrying a Balance

If you receive notice that the penalty APR will apply to new transactions starting in 45 days and you feel the rate is too high (most likely it will be), we recommend that you stop using that card to make any new purchases. That way, you can focus on getting current and then pay down your existing balance at your own pace and at your regular APR, without worrying about being charged an unmanageable penalty APR for new purchases.

Use a Card With No Penalty APR

Some credit cards actually don’t charge a penalty APR at all, though this isn’t common. Some popular credit cards that don’t charge a penalty APR include:

We selected these cards by first narrowing down more than 1,500 credit card offers to those that don’t charge penalty APRs. We then considered a variety of factors – including the cards’ regular APRs, fees, rewards, and supplemental benefits – to pick the best offers, both overall and for different credit levels.

Penalty APRs on Business Credit Cards

The penalty (or default) APR for small business credit cards is the interest rate applied to your entire balance once your credit card is in default. Small business credit cards are not covered by the CARD Act, so they are not protected by the rule that a cardholder must be at least 60 days delinquent for the penalty APR to apply to existing balances.

Even though small business credit cards do not get the same protections as consumer credit cards under the CARD Act, many card issuers extend some protections to business credit cards. The triggers for the penalty APR vary for different credit cards, but generally include missing one payment, going over your credit limit, or making a payment that is returned.

How to Use Business Cards in Light of Penalty APRs

Given the exclusion of small business credit cards from the Credit CARD Act, you should avoid using them for business funding purposes. Rather, you should only use them for everyday business purchases that you will be able to pay off in full each month.

You can use a 0% APR consumer credit card to handle company financing. It’s usually fine to use a personal credit card for your business, as long as you don’t mix business and personal expenses on the same card. In some cases, though, making business purchases on a personal card may violate the credit card’s terms, so just make sure you check whether that’s the case beforehand.

There are a couple reasons why this is an effective strategy:

• You’re not opening yourself up to any added liability by using a consumer card. Small business credit cards, contrary to what some people think, do not shield you from personal liability for company debts. In fact, all of the major credit card issuers hold small business owners personally liable for unpaid business card balances.
• Consumer cards also tend to offer more attractive 0% deals, and by using such a card for funding, you’ll be picking up some valuable CARD Act coverage.

Another alternative for business financing is to use a business credit card from an issuer that has proactively added CARD Act protections, even though they’re not legally required to.

No matter what type of card you use for financing, though, it’s wise to use a small business rewards card for everyday purchases because such cards offer uniquely valuable rewards in popular business spending categories, such as office supplies and telecommunication services. They also typically provide sophisticated expense tracking tools.

Bottom Line

Make sure you are aware of what will activate the penalty APR on each of your credit cards. You can do that by checking your cards’ terms and conditions or calling customer service. These terms are subject to change, however, so make sure you have the most recent information.

If you are unfortunate enough to trigger the penalty APR with a late payment, make sure to get current as quickly as possible to ensure the default APR doesn’t get applied to your existing balance as well.