What is a penalty APR—and how to avoid it

Credit cards have multiple APRs for different kinds of borrowing. Most common is the purchase APR, which is the interest you are charged for balances you incur from everyday spending. 

But card issuers frequently establish unique APRs for balance transfers and cash advances too. This can make it hard to keep track of what interest rate you're being charged at any given time.

One of the highest APRs you may notice on your credit card agreement is your penalty APR, which is an increase in your interest rate when you miss a payment or a payment is returned.

Penalty APRs are exactly what they sound like — a penalty for doing something wrong. But they can be completely avoidable if you take certain actions.

Below, Select reviews what a penalty APR is, how to avoid a penalty APR and credit cards that have no penalty APRs.

When you pay your credit card bill more than 60 days late, card issuers may penalize you with an interest rate that's significantly higher than your regular APR. 

For instance, the Chase Sapphire Preferred has a 21.24% - 28.24% variable APR (based on credit worthiness), but the penalty APR is a variable up to 29.99%.

Penalty APRs last for at least six months, but can be longer if you continue to make late payments.

The terms for the Citi® Double Cash Card state that the "penalty APR may apply indefinitely." (see rates and fees.)

However, if you make consecutive on-time payments for six months, card issuers are required under the CARD Act to revert the APR on your outstanding balance back to the regular APR. But they can still keep the higher penalty APR for new purchases.

Terms for the Blue Cash Preferred® Card from American Express state: "If the penalty APR is applied, it will apply for at least six months. We review your account every six months after the penalty APR is applied. The penalty APR will continue to apply until after you have made timely payments, with no returned payments during the six months being reviewed."

The simplest way to avoid a penalty APR is to pay your bill on time. This can easily be done by setting up autopay so you don't have to worry about it. Select recommends setting up autopay for at least the minimum due, but it's best to pay the full balance and avoid paying interest entirely.

You can also opt to set reminders on your phone and through your card issuer to ensure timely payments. But remember — you can also trigger penalty APRs when a payment is returned. Maintaining a sufficient balance in your checking account (and monitoring it regularly) is essential in avoiding penalty APR.

If you have a history of missing credit card payments, consider opting for one of the credit cards below that have no penalty APR.

Credit cards that have no penalty APRs are hard to find, so we've done the work for you and rounded up some options.

Petal 2 Visa Credit Card issued by WebBank.