What implication does a penalty APR have for borrowers?

A penalty APR has significant implications for borrowers, primarily by increasing the interest rate for missed payments. When a borrower fails to make payments on time or violates other terms of their credit agreement, lenders may impose a higher interest rate known as a penalty APR. This elevated rate significantly impacts the total cost of borrowing, as it means that any outstanding balance will accrue interest at this higher rate, leading to increased overall payments and potentially extending the time required to pay off debt.

The increased interest rate serves as a deterrent against missed payments and encourages borrowers to adhere to their repayment schedule. It can create a cycle of debt, making it difficult for borrowers to effectively manage their finances if they continue to miss payments. Understanding this effect underscores the importance of timely payments and careful management of credit obligations.

While other options may have elements of truth regarding credit management, only the increase of the interest rate due to missed payments directly encapsulates the consequences of a penalty APR, making it the most accurate choice.