What does Default rate mean?

Also known as the penalty rate, the default rate is a very high interest rate which is charged by a credit card issuer whenever the consumer goes against the credit card’s terms and conditions. The default rate is triggered if the customer makes late payments or goes over a credit card’s charge limit.

It is the rate at which a debt holder defaults on the sum of money he or she owes. The default rate is frequently used by card issuers when they first set interest rates, but may also refer to the interest rate at which companies default on their loans. The default rate tends to rise whenever there is an economic downturn, because businesses and investors see a steady decline in sales and income while they are still obliged to pay off the same amount of money they owe.