What Does It Take to Get Hit with a Penalty APR?

When it comes to a business credit card, most of us pay a great deal of attention on the intro APR, features, benefits, and rewards. Unfortunately, we also rarely pay enough attention to the terms and conditions that define whether or not your account is in good standing.

In particular, there is a penalty rate known as a default APR (it's also known as late payer APR or penalty APR). If you trigger this penalty then the interest rate applied to your current balance goes up dramatically.

The default APR rate -- and the behavior that triggers it -- varies for every business credit card. In order to help small businesses research the best business credit card for their needs, I have compiled a list of the default APR rates and triggers of several major business cards.

American Express

Penalty APR - 27.24% (Prime Rate + 23.99%)

Includes the Starwood Preferred Guest Business Credit Card, SimplyCash Business Card, Lowe’s Business Rewards Card and Jet Blue Business Card

Default trigger – The Penalty APR will apply to your account if you make two or more late payments in a 12-month period; you go over your credit limit three times in a 12-month period; or you make a payment that is returned. If the Penalty APR is applied, it will apply for a minimum of 12 billing periods in a row, and will continue to apply until after you have made timely payments, with no returned payments, and without going over your credit limit for 12 billing periods in a row.

Applied Bank

Default APR - 29.99%

Includes the Small Business Micro Loan Card

Default trigger – With this card if any minimum payment is not received by the last day of the billing cycle in which it was due, then the default APR will apply beginning the first day of the next billing cycle.

Capital One

Penalty APR - 29.4%

Includes No Hassle Miles, Preferred No Hassle Miles, Business Platinum, Venture for Business, Business No Hassle Cash Premier and Business No Hassle Cash

Default trigger – The Penalty APR may be applied to your account if you make a late payment. If APRs are increased for a payment that is more than 60 days late, the Penalty APR will apply indefinitely unless you make the next six consecutive minimum payments on time following the rate increase.

Chase Bank

Default APR - 29.99%

Includes INK Cash, INK Classic and INK BOLD

Default trigger - If you fail to make your minimum payment by the due date, exceed your credit line, or make a payment that is returned unpaid on this account or any other account or loan you have with Chase or any of its related banks your APR goes up to 29.99%. If an APR is increased for any of these reasons, the Default APR will apply indefinitely to all outstanding balances and future transactions on your Account.

Citi Business

Default APR 23.99% - 29.99%

Includes the AAdvantage Visa Card, AT&T Universal Business Rewards Card, AAdvantage Master Card and the World MasterCard.

Default trigger - All your APRs may automatically increase up to the Default APR if you default under any cardmember agreement that you have with Citi. This includes failing to make a payment with Citi when due, exceeding your credit line, or you make a payment that is not honored. Factors considered in determining your Default APR may include how long your account has been open, the timing or seriousness of a default, or other indications of account performance.

Discover

Default APR - 28.99%

Includes the Discover Business Card and the Discover Business Miles Card

Default trigger - If you are late making a payment or your account is over the limit twice, they may increase your APRs to a Default Rate. Your Default Rates are determined based on factors such as your current purchase APR, your payment history with Discover and your general credit history.

The bonuses, perks and rewards you get from these types of business credit cards are excellent but make it a priority from this point forward to fully understand the pricing and terms and conditions

By doing your homework you can avoid any surprises and prevent your business from falling into the default APR trap.

Marco is founder of the Business Credit Insiders Circle, a step-by-step business credit building system providing fleet credit cards, vendor lines of credit, business credit cards, merchant lines of credit, and funding sources. You may contact Marco directly at: marco@businesscreditblogger.com. Follow Marco on Twitter @MarcoCarbajo and read more of his insights on getting business credit.