What is a penalty APR?

A penalty APR, or penalty Annual Percentage Rate, is a higher interest rate on a credit card account when the cardholder is late on payments or has otherwise broken the terms of their credit card agreement. In California, penalty APRs are regulated by the California Finance Lenders Law and by credit card issuers’ own terms and conditions. When a cardholder is charged a penalty APR, the interest rate on their credit card can increase significantly, making it more expensive to carry a balance. Generally, the penalty APR will remain in effect until the cardholder makes a certain number of consecutive payments on time, at which point the APR can revert back to the original rate. It’s important to note that not all credit cards have a penalty APR, so it’s important for consumers to read the terms of their credit card agreement carefully to check for this provision. The California Finance Lenders Law regulates the maximum penalty APR a credit card issuer can charge to its cardholders. For example, if the maximum APR typically allowed by law on the account was 15%, then the penalty APR could not be higher than 24%. It’s important to note that although the California Finance Lenders Law provides some protection to consumers, credit card issuers may have different terms in their agreements with customers. Therefore, it’s important to read the credit card agreement carefully to see what the specific terms and conditions are.

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What is a penalty APR?

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