Active-duty service members can significantly reduce their loan interest rates to a maximum of 6% under the Servicemembers Civil Relief Act (SCRA), providing substantial savings and easing financial burdens. Understanding the application process and eligibility can help maximize these benefits for both existing debt and new loans.
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The Servicemembers Civil Relief Act (SCRA) offers military members many protections, including the ability to have interest rates reduced to 6% when they join the military, or when they are activated if they are members of the Guard or Reserves. Getting interest rates lowered isn’t automatic, however, and it also does not apply to any and every debt a military member has. It only applies to debts taken out before the member enters active military service. There are a few other important items of note, so let’s jump in and discuss in greater detail how to get reduced interest rates under the SCRA.
How this works in layman’s terms: If you have a debt before you join the active military service, you can have the interest rate reduced to 6%. If the loan is a mortgage, the rate can be reduced for the duration the member is in the military, plus one year. Other loans are only reduced for the duration the member is on active duty.
Amounts above 6% are required to be forgiven by the lender. Lenders are also prohibited from changing other terms of the loan, including accelerating the payment terms, calling the loan, etc.
Which types of loans does the SCRA apply to? The Servicemembers Civil Relief Act can apply to any loan you had before joining active duty service, including student loans, credit cards, car loans, mortgages, medical bills, installment loans, title loans, and more. The SCRA also applies to joint loans, provided the servicemember’s name was on the loan before joining the military.
Here is the exact language used: From Title 50 US Code, Title II – General Relief, § 527 (Source).
Maximum rate of interest on debts incurred before military service:
(a) Interest rate limitation.
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Great – so how does this work in practice? Good question! You (the servicemember) must bring this to your lender’s attention, provide a copy of your orders, and request them to reduce your loan. Most large banks and lenders will probably already be familiar with this, but you may need to be patient with some lenders if they have not come across this before.
Most military banks and credit unions are very familiar with this process and have systems in place to quickly process these requests.
Here is the what you need to do:
Effective Date:
It’s important to note the effective dates, as some lenders may inadvertently process the request on the date they receive the notice from the servicemember. Simply reach out to the creditor and request they change the effective date to the initial date on your orders, and ask that they retroactively apply this to your loan and apply any over-payments to your outstanding balance or to a future payment. This will help you reduce your overall debt and speed up your pay off date.
No, it doesn’t. It only applies to loans incurred before you joined the active military. It does not apply to loans you take out while you are in the military.
Joint Loans: The SCRA applies to joint loans, but only if the joint loan was taken out before the member joined the military. For example, say a man and woman marry and the woman has a student loan in her name only. The man later joins the military. Shortly after joining the military, they refinance the student loan and put it in both names. The SCRA would not apply because the military member’s name was not on the loan at the time he joined the military. The SCRA would apply if they had made this a joint loan before he joined the military.
Creditor Protection: There is also a clause called “Creditor Protection” that states:
“A court may grant a creditor relief from the limitations of this section if, in the opinion of the court, the ability of the servicemember to pay interest upon the obligation or liability at a rate in excess of 6 percent per year is not materially affected by reason of the servicemember’s military service.” (source)
Notice the Creditor Protection clause requires a court order, so the lender would need to take the servicemember to court to prevent the 6% interest rate from taking effect. There would need to be extenuating circumstances for this to occur.
Other than the above examples, I don’t know of any reasons that wouldn’t apply.
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I receive a lot of questions here, and it is my goal to answer as many as possible. Most questions and answers can be found below the articles. But sometimes it’s helpful to put the question and answer inside an article so more people see it. This is one of those times. Here is the abbreviated question and my answer (identifying details removed).
Here is the question:
Hi Ryan,
Thanks for setting up this site, it has given me a lot of great information on SCRA and in return I’ve had success in getting the benefits it prescribes.
I do have one question regarding a small loan account I have with Navy Federal Credit Union, if you wouldn’t mind answering.
I am a Reservist who has done multiple deployments and mobilizations over the years. I was recently mobilized in support of Operation XYZ and I have had all my accounts lowered to 6% except one.
I submitted the proper request and orders for the rate reduction and received this response from NFCU:
“We are in compliance with and support the Servicemembers’ Civil Relief Act (SCRA). We regret that we were unable to process your request to reduce the interest rate on your Navy Federal loan ending in XXXX.
This account was established on 03/10/10 during your active duty period of 04/15/09 to 04/25/10; therefore, your account does not qualify for relief under SCRA. We sincerely regret any inconvenience or frustration this may cause.”
In past mobilizations they had reduced the percentage rate regardless of the loan being established during a previous period of active duty. I have searched the SCRA law and I cannot find anything that shows I cannot receive relief if my loan was established during a previous period of active duty.
Can you point me towards the light on this please? Is there part of the law that stipulates you cannot receive SCRA relief if the loan was established during a past period of active duty?
Thanks for all you do on this site for my fellow brothers and sisters in-arms!
This is a great question, and thank you for the compliments on the site. It’s an honor to continue serving the military and veteran community!
Again – great question. Members of the Guard and Reserves often change duty status, and I haven’t seen this properly addressed anywhere.
So let’s look at the law. The SCRA stipulates the loan must have originated before the member joined the military. Here is the quote:
“An obligation or liability bearing interest at a rate in excess of 6 percent per year that is incurred by a servicemember, or the servicemember and the servicemember’s spouse jointly, before the servicemember enters military service” (source)
Further reading the text on that page (follow the link to read the rest) doesn’t give us more information to work with. The law was originally drafted during World War II. It was updated in the early 2000’s, but the activation and deactivation of servicemembers was not addressed. That leaves this open to interpretation.
I interpret this to mean the loan must have been taken out before the member joined active service. Since you took out your loan while you were on active service, it may not apply.
Am I 100% certain? No, I’m not. That is my interpretation based on reading the law as presented on the Cornell website. But as I mentioned, I haven’t seen anything that specifically addresses the SCRA for members of the Guard and Reserves. Frequent changing of duty status from inactive to active makes this difficult for lenders and servicemembers to keep track of.
My advice: I would contact your base legal office. They offer free legal assistance and should be able to give you a definitive answer to your question. They can also help you draft a letter to the lender if the base legal office determines the lender is in error. I will say that Navy Federal Credit Union is a top-notch financial institution, and they do care about military members and their families. So I don’t think they would flagrantly break the SCRA rules. Your base legal office should give you the best answer to this question.
Secondary advice: If you have a decent credit score, you may be able to transfer your loan to a credit card offering 0% interest. This is called a balance transfer and allows you to transfer the balance of your loan to a credit card offering more favorable terms. Some of them allow you to pay off the credit card at 0% interest for up to 21 months, which is much longer than the average deployment, and 0% interest is much better than 6%. Most credit card companies do charge a small amount to transfer the balance (often 3%), but again, this is much lower than the 6% you can get through the SCRA (which is only for a limited time), and possibly much lower than your current interest rates. Opening a new credit card is not for everyone, but it is an option to consider if you are serious about transferring the debt and paying it off quickly (just don’t add new debt to the card, which would defeat the purpose!).
Further Reading: 50 U.S.C. – Servicemembers Civil Relief Act (SCRA) (PDF).
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Ryan Guina is The Military Wallet’s founder. He is a writer, small business owner, and entrepreneur. He served over six years on active duty in the USAF and is a current member of the Tennessee Air National Guard.
Ryan started The Military Wallet in 2007 after separating from active duty military service and has been writing about financial, small business, and military benefits topics since then.
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i need clarification on something? how does scra work with credit cards? in the sense like this, i have a credit card before joining service, i join service and my credit card interest is capped at 6%, if i continue to use that credit card, will my interest still be capped till i leave service even continuing to use the credit card? the issue I’m having is debating that everytime i use the card its not a loan im taking out, it is a preexisting line of credit before joining service and its the credit cards interest and not the individual purchases that are capped? every credit card but one is fighting me on this.
Hey Erin, Under the Servicemembers Civil Relief Act (SCRA), the interest rate on any debt you incurred before entering military service is capped at 6% per year during the period of your active duty. This cap applies to the entire balance on your credit card, not just to the balance that existed at the time you entered active duty. This means that if you had a credit card before joining the service, the interest rate on that card, including any new charges you make, should be capped at 6% as long as you remain on active duty. Here’s how it works: Preexisting Debt: The SCRA applies to debt incurred before you entered military service. For a credit card, this means the account was opened before you joined the military. Interest Rate Cap: Once you’re on active duty, the interest rate on that credit card should be reduced to 6% per year, including on any new charges made to that card during your active duty period. Continuing Use of the Card: The key point here is that the interest rate cap applies to the entire credit card account, not just the balance that existed when you entered service. This means that as long as the credit card was opened before your service, all charges made during your service period should also benefit from the 6% interest cap. Duration: The interest rate reduction lasts for the entire period of your active duty. Once you leave service, the credit card company can raise the interest rate back to the pre-service rate for new charges made after you leave service, but not retroactively. If credit card companies are not applying the 6% cap to new charges, they may be misinterpreting the SCRA. It’s important to note that the SCRA protects you against interest exceeding 6% on any pre-service debt, which includes the ongoing use of a preexisting credit card. If a credit card issuer refuses to apply the 6% cap, you can consider filing a complaint with the Consumer Financial Protection Bureau (CFPB) or seeking legal advice from a military legal assistance office. For detailed information on this, you can refer to the official SCRA guidelines provided by the Department of Justice or the Consumer Financial Protection Bureau.
I live in and purchased a home in Louisiana. I know Louisiana has their own state SCRA, would my mortgage be covered under it?
I am the wife of active duty Army- he has been in the Army 8+years, however, we have only been married 03/2018- none of which our accounts are joint. I didn’t qualify for SCRA prior to 03/2018 because we were not married- I have received relief from from most of my credit card debt; however, there are a few that have stated that it wasn’t a joint account; I was pregnant & under his care at the time of request. I didn’t qualify until we were married, am I able to push for making the last 5 reducing my interest?
Sheila, a corporal in the Army, receives her orders August 5 to report for active duty on September 5. She provides her lender a written request and a copy of her active duty orders on August 15. What date must the lender reduce her interest rate?
Hello Naomi, this is outside my area of expertise. I suggest the corporal contact her JAG office or that the lender contact their legal department. Best wishes.
Question. AC for currently 14 years. All of my credit cards have complied with scra with 6% apr for my entire career. My amex about a year ago went back to the original 16% interest. After resubmitting 6 times it was accepted but the interest did it change. They told me this is what was told to them by the scra management. I was under the assumption the 6% was valid for your entire active service time.
Hello Jesse, The SCRA rules for interest rates only apply to loans that were taken out before you entered the military. So any loans you took out after joining the military will not automatically be lowered to 6% interest. Some financial institutions will do that, but not all will. Best wishes.
In my experience, they compare active orders & have to retroactive date the interest from the opening of the card and will credit your account. Lenders such as Kohls, Old Navy, Gap went to 0%. Credit One did not adjust at all. First Premier went to 3%, Capital 1 is now 4%
Hey there. Do you happen to know what the stipulations are for those who are currently TDRL?
My wife was active duty from feb 2009-may 2015 and was TDRL as of May 2015 for the next 5 years. If I was to request scra for accounts opened prior to 2009 will they approve or adjust the rate up until 2015 or will they deny us because we didn’t file and request while she was active duty?
