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Interest Caps Under the Servicemembers Civil Relief Act

For active servicemembers of our military, it can be challenging and overwhelming to handle finances at a time when more important priorities take hold in their lives. Their service to our country unfortunately doesn’t always provide a living to overcome the financial obstacles they face here at home.

Thankfully, the Servicemembers Civil Relief Act (SCRA) provides relief from some of the burden interest adds to certain financial commitments. While the SCRA does not allow for full forgiveness of financial debts, there is an avenue to limit and lower those costs.

The Six Percent Rule

The “Six Percent Rule” under the SCRA provides relief from high interest rates for financial commitments signed prior to active military service while an individual actively serves. The rule, as its name indicates, limits interest rates to certain pre-service financial obligations to no more than 6%. 

An active service member would need to provide proof of military service (such as a military order) and a notice requesting the interest rate be lowered to 6% to the financial institution they have an agreement. Debts like credit cards, vehicle loans, home loans, and students loans will remain at a 6% interest rate throughout the active service period. Mortgages are handled differently as the 6% interest cap remains for a year after active service ends.

What happens to the interest above 6%?

Once the agreement is altered to reflect the new 6% interest rate, any interest above that number is completely forgiven. The number won’t be deferred and active servicemembers won’t have to worry about the money going back on their record once they are no longer actively serving.

The number is forgiven retroactively, meaning any unpaid interest over 6% within the agreement during active service but prior to filing will be forgiven. Creditors may not take any adverse action to raise other rates such as principal payments in order to offset the lowered interest rate, but the service member will still be expected to make monthly payments under the new terms.

How long do I have to apply?

Active servicemembers can apply for the lowered interest rate at any point during their active service and within 180 days of the end of their military service. The written notice must include the proof of service and the request for a lowered interest rate, as noted above.

Regardless of when a service member applies, the rate will apply retroactively to the point their service began. For example, if you serve for 25 years, retire, and apply for the rate 100 days after your service ends, all interest over 6% over the course of the last 25 years will be forgiven.

At Bell Law, we believe in doing our part to help servicemembers take advantage of the many benefits of the SCRA. If a company tries to stop you from getting the interest rate you’re owed, contact us and we’ll take care of you.

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