Credit Card Interest Limits

Credit cards provide consumers with an easy way to charge transactions to a lender, creating small loans with every purchase. However, credit card companies want to make sure they make a profit on their credit cards, so they use interest rates very carefully, raising them at certain points on debts still unpaid. Credit card interest limits vary depending on state laws.

APR

APR stands for "annual percentage rate," the interest rate paid on the borrowed money as a yearly rate. This rate can change even for one card based on the actions of the borrower. The purchase APR is the main rate, applied to purchases as long as they are not paid off in the month in which they are made. If a borrower defaults on a payment in any loan, the company will generally raise this rate.

Introductory Periods

An introductory APR is a low interest that usually lasts for several months before it is replaced by a higher, normal rate. This is done to encourage borrowers to use the card. The federal government has created laws that require companies to tell borrowers how long this introductory period lasts and what the rate will be after it ends. Many companies increase rates by 100 percent or more after the introductory period.

Federal Laws

There is no federal limit on credit card interest. According to United States law, a credit card company can charge whatever rate it wishes. In the years before the Great Depression, interest rates were limited by federal legislation, but afterwards the limits were repealed.

State Laws

While the federal laws do not impose interest limits, states laws can impose limits for credit companies based in those states. Many states do impose limits, such as Minnesota, which caps interest rates at 18 percent. Other states, like Delaware, do not cap interest rates at all. Unsurprisingly, all major credit card companies are based in states without interest caps, and several have even moved to these states so they can continue charging whatever rates they want.

Current Legislation

There is current proposed legislation that would again federally limit credit card company interest rates. For instance, in 2009 a bill was put forth that would have created a nationwide limit of 15 percent. This legislation has been turned down by the Senate, but some senators still remain interested in such a bill.