December 03, 2020

Maximum Rates of Interest

I have a car loan that I took out before I joined the military. I am having a hard time making the monthly payments now that I’m in the service. Can I get my payments lowered?

The SCRA requires your creditors to lower the interest rate to 6% on most debts that you incurred prior to joining the military, so long as you can show that your military service had a “material impact” on your ability to pay. If you qualify, creditors must recalculate your monthly loan payment based on the lowered interest rate. This rate will be retroactive to the date that you were called to active military service, and will extend throughout your active military service. For home loans such as mortgages and deeds-of-trust, the reduced rate will continue for one year after you get out of the military.

There are two very important things to know about this interest rate reduction:

First, your creditor will not automatically lower your interest just because you’ve entered active military service. You must request the rate reduction from the creditor and provide copies of your military orders calling you into service. You must also explain why the lowered interest rate is necessary to prevent financial hardship on you—the creditor is obligated to lower the interest rate only if you can show that your military service has an impact on your ability to pay your debt at the higher rate of interest. Second, the rate reduction applies only to debts you incurred prior to military service. If you take out a loan after you join the military, its interest rate is not subject to being lowered under the SCRA. Frequently, you can get a sample letter requesting interest relief and asserting that you’ve been “materially affected” by entering into active military service.

Talk to your military legal assistance attorney about the best ways to request interest rate reductions from your creditors.

I have been in the Army Reserve for a number of years. I just found out I am being mobilized to deploy overseas. I have a mortgage I took out on my home last year. Can I request an interest rate reduction for the period while I am on active duty?

Yes—if you were not on active duty when you took out the mortgage, it is considered a preservice debt that can have its interest rate adjusted down to no more than 6% during your period of active-duty service overseas.

I requested a rate reduction on a preservice loan, and the bank has ignored my request. What do I do?

It can be a federal crime for a creditor to fail to observe your SCRA rights with respect to an interest rate reduction request. Talk with your military legal assistance attorney about the steps to take next.  Frequently, it’s just necessary to go “up the chain of command” in the bank; or to contact the bank’s legal counsel, to resolve such an issue.