How to Reduce Interest Rates under the Servicemembers Civil Relief Act (SCRA)

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…
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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.

Servicemembers Civil Relief Act

Debts Covered by 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.

  • (1) Limitation to 6 percent. 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 shall not bear interest at a rate in excess of 6 percent –
    • (A) during the period of military service and one year thereafter, in the case of an obligation or liability consisting of a mortgage, trust deed, or other security in the nature of a mortgage; or
    • (B) during the period of military service, in the case of any other obligation or liability.
  • (2) Forgiveness of interest in excess of 6 percent. Interest at a rate in excess of 6 percent per year that would otherwise be incurred but for the prohibition in paragraph (1) is forgiven.
  • (3) Prevention of acceleration of principal. The amount of any periodic payment due from a servicemember under the terms of the instrument that created an obligation or liability covered by this section shall be reduced by the amount of the interest forgiven under paragraph (2) that is allocable to the period for which such payment is made.

How to Reduce Your Interest Rate Under the SCRA

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:

  • Provide a written notice to your lender.
  • Provide to the creditor written notice and a copy of the military orders calling the servicemember to military service and any orders further extending military service (be sure to black out any operational or confidential information).

Effective Date:

  • Effective as of the date on which the servicemember is called to military service. This could be the date you join active military service, or the date you are activated while serving in the Guard or Reserves.

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.

Does the SCRA Apply to All Loans?

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.

A Real Life Example of the SCRA in Action

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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  1. Crystal Castillo says

    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?

  2. naomi smith says

    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?

    • Ryan Guina says

      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.

      • JESSE says

        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.

      • Ryan Guina says

        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.

    • Crystal Servin says

      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%

  3. Ashley says

    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?

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