Reducing Interest Rates on Debts for Members of the Military

While on active duty, servicemembers can get the interest rate on debts reduced to 6%.

If you are a member of the military, you may be able to reduce the interest rate on your credit card debts, car loans, mortgages, and other debts while you are on active duty. If you qualify, the rate, along with fees and penalties, cannot be greater than 6%. And, even better, the rate will apply retroactively to the time that you started active duty.

Do You Qualify for an Interest Rate Reduction?

The interest rate reduction is part of the Servicemembers Civil Relief Act (“SCRA”). In order to qualify for the interest rate reduction, you must be a service member who meets the following requirements:

  • You incurred the debt before being called to active duty.
  • You are on active duty
  • The debt is in your name or owed jointly with another person. (Debts that are solely in the name of a spouse are not eligible for the interest rate reduction.)
  • Your ability to pay the higher interest rate is materially affected by your military service.
  • You have made a written request to your creditors to get the reduced interest rate (see below for instructions on what to include in your request).

What Is Active Duty?

To take advantage of the interest rate protections, Army National Guard members must be activated for at least 30 days pursuant to orders issued by the President or Secretary of Defense. For other military members, the term “active duty” is used in the traditional sense. For reservists and National Guard members who are called to active duty, the period of active duty begins on the date deployment orders are issued.

When Might Your Service Affect Your Ability to Pay?

To be eligible for the interest rate reduction, your ability to repay the debt at the higher interest rate must be “materially affected” by your military service. This can occur because, for example:

  • you earn less on active duty than you did while working as a civilian, or
  • you have additional expenses because of the activation, such as child care.

You don't have to prove that your service affects your ability to repay. Instead, it is the creditor’s responsibility to challenge the interest rate reduction. This is done by going to court, something very few creditors choose to do.

Debts Which Qualify for the Interest Rate Reduction

The interest rate reduction applies to all debts, other than federally insured student loans. Examples of qualifying debts include:

  • credit cards
  • car loans
  • mortgages, and
  • installment loans.

Remember though, only debts incurred before active duty began are eligible for the interest rate reduction. Debts that fall into this category usually are incurred:

  • by a service member before joining the military as an active duty member, or
  • by a reservist prior to being activated for a deployment.

The Interest Rate Cap

If a debt qualifies for the reduction, the creditor may not charge more than 6% annually in interest, fees, or penalties during periods of active duty.

The restriction on fees and penalties is an important one. If you pay your credit card bill late, the total of any late fee and the interest charged cannot exceed 6%. In practice, this generally means that the creditor will waive late fees and penalties.

The creditor must forgive any interest over 6%, not merely postpone it. This means that the creditor cannot add the difference to the loan once active duty has ended or extend the period of the loan to make up for lost interest.

If you have paid interest above 6% while on active duty, that amount may be credited toward principal, applied to future payments, or refunded to you.

How Long Does the Interest Rate Reduction Last?

The interest rate reduction goes into effect on the date the service member begins active duty, and, with the exception of mortgages, ends when active duty comes to an end. The interest rate reduction on mortgages remains in effect for one year after active duty ends.

How to Get the Interest Rate Reduction

In order to claim the reduced interest rate, you, or your power of attorney, must provide a written notice to each creditor along with a copy of your activation order. Send these items via certified mail, return receipt requested. The letter should include your:

  • full legal name as it appears on the orders (if the credit account is in a different name because of marriage, attach a copy of the marriage certificate)
  • social security number.
  • date of birth
  • home address, and
  • active duty start date.

The letter should also include:

  • a short statement that you will be serving on active duty, and requesting that the interest rate on the account be lowered to 6% pursuant to the Servicemembers’ Civil Relief Act, and
  • a statement that paying the debt at the current interest rate will be materially affected by your active duty service.

If your power of attorney is sending the letter, that person should enclose a copy of the signed power of attorney.

You must make the request within 180 days from the date you are released from active duty. The creditor will apply the rate reduction retroactively to the time you were on active duty.

Information About Other Protections

The SCRA provides many other protections, including some related to cell phone contracts, rental obligations, and car leases. Contact your base’s JAG office or Family Readiness Group for more information. You can also read about some of these protections in Nolo's Special Protections for the Military topic area.)

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