What Is a Retroactive Interest Rate Increase?

A retroactive interest rate increase is a common practice used in the credit card industry. The credit card company increases interest rates on purchases made on the 澳洲幸运5官方开奖结果体彩网:credit card that occurred in the past.

A retroactive interest rate increase can affect your outstanding balance and is often viewed as an unfair lending practice. It is considered unfair since most consumers likely purchased the item in the past based on the assumption they were receiving a 澳洲幸运5官方开奖结果体彩网:fixed interest rate.

A retroactive interest rate increase effectively backdates a higher i❀nterest rate, increasing the amount of interest owed and, therefore, the amount the purchaser will end up paying for the item.

Difference Between Retroactive Interest and 0% APR🌌

Retroactive interest rates and 澳洲幸运5官方开奖结果体彩网:0% APR offers are similar in that both usually start at 0% financing. The key difference is that with a 0% AP⛄R offer, the interest rate remains fixed at 0% for a specified term. After that point, the interest rate typically increases, but the purchases made during the promo time stay at 0%.

With a retroactive interest credit card, you may also see rates increase after a period of time, but if you don't pay off the balance by that point, your initial interest rate is no longer 0%. The card issuer retroactively raises it. So, instead of enjoying the initial 0% rate, you might end up paying 20% APR on those purchases you already made.

How a Retroactive Interest Rate Increase Works

A retroactive interest rate increase is perceived as an unfair lending process, which led to the Obama administration’s introduction of the Credit Card Accountability, Responsib𝐆ility and Disclosure Act in 2009. The act aimed to protect consumers against arbitrary interest rate increases𓄧, misleading terms, excessive fees, andᩚᩚᩚᩚᩚᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ𒀱ᩚᩚᩚ other unsavory credit card company practices.

The act was also designed to limit how credit card companies can charge their 澳洲幸运5官方开奖结果体彩网:customers. Its key elements include a ban on arbitrary interest rate increases, including retroactive rate increases. The act states that banks cannot raise rates on your outstanding balance unless you have failed to pay for 60 days or more.

Banks still may increase rates if your contract allows them to do so. For example, an introductory rate can be increased after a specified amount of time, but that amount of time has to be a minimum of six months under the new law. Ultimately, this legislation hoped to ease the burden of 澳洲幸运5官方开奖结果体彩网:credit card debt on consumers and make it easier for consumers to pay off their balances. It was also enacted as a response to the☂ rising level of unsecured consumer debt.

How to Avoid a Retroactive Interest Rate Iꦬncrease on Your Credit Cards

Financial companies issue credit cards to enable cardholders to borrow funds to pay for goods and services on the condition that the cardholder will pay back the original amount plus agreed-upon additional charges. Credit cards are known to have 澳洲幸运5官方开奖结果体彩网:higher interest rates than other forms of consumer loans and 澳洲幸运5官方开奖结果体彩网:lines of credit. Inter🍸est on the amount charged to the card usually be𒉰gins one month after a purchase is made.

Here are a just a ✃few ways to avoid retroactive inte𝕴rest:

• Pay attention to the payoff date and payment due date. The fine print might specify a payoff deadline but don't assume it's the same date as your monthly payment. It may come before then, so be prepared to pay off your card's balance by the deadline.
• Specify where your payments go. If your card has multiple charges, your issuer might put your payments towards more recent purchases instead of the initial one that qualifies for the promotional APR. When you make a payment, tell the issuer you want to apply it to the earliest purchases made with the card.
• Stop using the card until you pay it off. Overlapping balances can make it difficult to understand what APR you're being charged. To be on the safe side, work on paying off the card before you use it for purchases.

Even though the Credit Card Accountability, Responsibility and Disclosure Act is now in place, it is important to read the fine print on what kind of interest changes are allowed in the contract before choosing a credit card. If you experience a retroactive interest rate increase or suspect one may have occurred on one or more of your credit card purchases, you should contact the U.S. Federal Trade Commission (FTC) or the Consumer Financial Protection Bureau (CPFB).

The Bottom Line

If you have the choice between a retroactive interest rate credit card and one with 0% APR financing, go for the latter. Fixed rate interest cards have clearer repayment details and you won't face the surprise of a higher interest rate on your next credit card statement.