Auto loans are extremely common in the United States, with nearly 44% of Americans currently making a car payment. However, as many borrowers know, interest rates on auto loans can be quite high, especially for used cars, longer loan terms, and borrowers with lower credit scores. This unfortunate combination often leads borrowers to fall behind and even default on their loans. According to The Washington Post, as of February 2019, around 7 million Americans were at least 3 months behind on their car payments.
With so many non-performing auto loans out there, lenders are often looking for ways to recoup their losses such as through repossession. However, when dealing with servicemembers, lenders need to be aware of the Servicemembers Civil Relief Act (SCRA). This act provides critical protections for active duty military members including limitations on repossessing their vehicles.
In this article we’ll take a closer look at how the SCRA impacts interest rates and repossessions for auto loans held by military members.
Overview of the SCRA
First, let’s look at what the SCRA is and who it applies to. The SCRA is a federal law that provides both legal and financial protections for active duty servicemembers. It applies to the following military personnel:
- Active duty members of the Army, Marine Corps, Navy, Air Force, and Coast Guard
- Reserve and National Guard members serving on federal active duty orders for over 30 days
- Commissioned officers in the Public Health Service and NOAA
Some key protections offered by the SCRA include:
- Capping interest rates on debts incurred prior to active duty to 6%
- Protecting against default judgements in civil suits
- Preventing foreclosures and repossessions without a court order
- Allowing termination of certain leases due to military service
In addition to servicemembers themselves, certain protections extend to their dependents as well.
How the SCRA Caps Auto Loan Interest Rates
One of the most valuable financial protections offered by the SCRA is capping interest rates on debts taken out prior to active duty service. This applies to all types of loans and debts that pre-date a servicemember’s active duty status, including mortgages, credit cards, personal loans, and auto loans.
For pre-existing auto loans, the SCRA limits interest rates to 6% APR while the servicemember is on active duty. This reduced rate also remains in effect for an additional year after the completion of active duty service.
To receive the reduced 6% rate, the servicemember must submit a written request to the lender along with a copy of their orders or a letter from their commanding officer documenting their active duty status. Upon receiving this documentation, the lender is obligated to lower the rate immediately. They cannot retroactively add interest above 6% after the servicemember leaves active duty.
Importantly, the servicemember can request this rate reduction at any point during their active duty service and up to 180 days after completion of active duty. The lender cannot penalize the servicemember for exercising their rights under the SCRA, such as by closing their account or refusing to grant future credit.
How the SCRA Impacts Auto Repossessions
Another critical protection offered by the SCRA relates to repossession of vehicles and other property. For any auto loan or lease entered into prior to active duty, the SCRA states that the servicemember’s vehicle cannot be repossessed without a court order while they are on active duty service.
If a lender pursues court action for repossession, the court has several options for protecting the servicemember:
- Order the lender to refund any payments already made on the loan before approving repossession
- Issue a stay to pause or delay the repossession proceedings
- Require the lender to pay the servicemember the difference between the vehicle’s value and remaining loan balance
For auto leases, the SCRA also prevents termination of the lease or repossession due to breach of contract without a court order. The court may grant a stay if the servicemember can show their active duty service made it impossible to comply with the lease.
Penalties for SCRA Violations
Given the serious impact of the SCRA protections, it’s critical for lenders to remain fully compliant. Ignorance of the law does not protect lenders from penalties for violations. Fines and legal consequences can result even from unintentional violations.
It’s recommended that lenders periodically check the active duty status of all customers. This helps identify any accounts that may require interest rate adjustments or special compliance procedures. Using a service like the SCRA Centralized Verification Service can simplify this process.
Are My Accounts Eligible for SCRA?
Your Navy Federal account(s) may be eligible for SCRA benefits if they were opened before you started active duty.
- Consumer loans
- Mortgages (including Home Equity Lines of Credit)
- Checking Lines of Credit
- Credit cards
- Business loans
- Student loans
You must request SCRA benefits from us no later than 180 days after your active duty end date.
To request protection under SCRA, we’ll need some information from you, including:
- Initial active duty start date
- Date active duty orders were issued
- Branch of service
An SCRA specialist may reach out for additional documentation. Examples of documentation we may request include:
- Call to active duty orders
- Recall to active duty orders
- Statement of Service (must be signed by Commanding Officer)
- Leave and Earning Statement
- Certified Letter signed by the Commanding Officer
It’s Easy to Request Your SCRA Benefits and Protection
You can fax us your documentation to 703 206-3108 or mail it to Navy Federal Credit Union, P.O. Box 3302, Merrifield, VA 22119, Attn: SCRA, Servicing. If you still have questions, feel free to give us a call at 1-888-842-6328.
As a member-owned and not-for-profit credit union, we have a mission — to put members first by making their financial goals our priority. Explore our Military Life section to learn more.
What is SCRA?
The Servicemembers Civil Relief Act (SCRA) is a federal law providing benefits and protections to individuals engaged in military service so they can focus on their missions without the same amount of financial-related stress as they otherwise might have.
I’ve heard that because of the SCRA, you can’t charge me an interest rate higher than 6%. Is that right?
One of the benefits of SCRA is a 6% interest rate cap on debt incurred prior to Active Duty. The 6% interest rate cap wouldnt apply, however, to a loan you took out while on Active Duty or debt incurred during an Active Duty period.
Navy Federal Credit Union made the decision to lower the SCRA interest rate cap as a service to our members. Effective April 1, 2022, Navy Federal is adjusting SCRA eligible accounts to 4%, which is a greater benefit than what the federal SCRA requires.
Which members of the military are protected by the SCRA?
The SCRA protects all branches of the U.S. Armed Forces, including the Army, Navy, Marines, Air Force, Coast Guard and Space Force.
In addition, the SCRA protects:
- Reservists called to Active Duty
- Members of the National Guard called to Active Duty pursuant to U.S. Code Title 10 or called to federal active service for more than 30 consecutive days under U.S. Code Title 32 section 502(f)
- Commissioned officers of the Public Health Service and National Oceanic and Atmospheric Administration engaged in active service
- U.S. citizens who are serving in the armed forces of a U.S. allied nation during the joint prosecution of a war or military action
Who isnt covered by the SCRA?
Some examples:
- Retired military personnel
- Members of the National Guard who havent been called to Active Duty or who havent been called to federal active service for a period of more than 30 consecutive days
- Servicemembers who applied for SCRA, and the request was submitted to Navy Federal greater than 180 days after their last day of Active Duty. As an SCRA requirement, a servicemember must apply no later than 180 days after the last day of Active Duty.
Are all my accounts eligible for SCRA interest rate reductions?
The following accounts are eligible for SCRA protection, provided the debt was incurred before going on Active Duty:
- Consumer loans (such as auto loans and personal loans)
- Credit cards
- Education loans (both federal and privately funded)
- Checking lines of credit
- Mortgages (such as first mortgages, fixed equity and home equity lines of credit)
- Business loans
I took out a loan as a full-time member of the military but before I was deployed overseas. Does my loan qualify for the 6% interest rate cap because of my deployment?
No, the SCRA caps the interest rate for pre-service debt only. SCRA interest rate benefit coverage isnt affected by deployment. Only loans you took out prior to Active Duty are covered by the SCRA.
I’m in the National Guard, and I was called to active service by the governor of my state for a state-related matter. Is the debt I incurred prior to this activation eligible for the 6% rate cap under SCRA?
No, for members of the National Guard, the SCRA extends protections for individuals called to Active Duty under Title 10 of United States Code (i.e., overseas combat) for any period or called to federal active service for more than 30 consecutive days in response to a national emergency or disaster declared by the President and supported by federal funds under Title 32 Section 502(f) of the United States Code. A call to active service by the governor of a state for a state mission that doesnt involve Title 32 Section 502(f) dollars doesnt qualify under the SCRA.
When you submit your SCRA request, please indicate if you’re also requesting benefits for a specific state. Your request will be reviewed for eligible benefits and protections for both federal SCRA and the state benefits in your request.
I incurred debt during a period of Active Duty, prior to my current Active Duty period. There was even an interruption between these 2 periods of Active Duty. Is the debt in question considered “pre-service” and, therefore, eligible for the SCRA 6% rate cap?
No, if the debt you incurred happened during an Active Duty period, it’s not eligible for SCRA. Only debt incurred during a civilian period, prior to Active Duty, is considered eligible.
I’m deploying and have been on Active Duty for the last several years; will Navy Federal reduce my interest rate?
The SCRA interest rate protection only applies to debts incurred prior to going on Active Duty. Deployments arent covered by SCRA for purpose of reducing interest rates.
I am on Active Duty in the military, but my spouse isnt. Does the debt my spouse incurred in their name alone before I joined the military qualify for an SCRA rate reduction?
The SCRA protection is available for pre-service debt belonging to the servicemember alone or to the servicemember and a spouse jointly. Debt held by a non-servicemember spouse or non-spouse isnt subject to SCRA coverage. There are certain state laws that provide benefits for spousal coverage, but these laws require a case-by-case analysis. When you submit your SCRA request, please indicate if youre also requesting benefits for a specific state. Your request will be reviewed for eligible benefits and protections for both federal SCRA and the state benefits in your request.
Protection for Those Who Protect Us
SCRA offers benefits and peace of mind so you can stay focused on the job at hand. Learn what may be available to you.
The Servicemembers Civil Relief Act (SCRA) provides legal and financial protection to eligible active duty servicemembers.
It includes benefits such as a 6% interest rate cap and foreclosure protections. However, effective April 1, 2022, Navy Federal is offering a lower maximum interest rate of 4% to eligible member accounts. The following individuals are eligible for protection under SCRA:
- All branches of the military (Army, Marine Corps, Navy, Air Force, Space Force and Coast Guard)
- Reservists called to active duty
- National Guard with qualifying federal active service*
- Commissioned officers of the Public Health Service in active service
- Commissioned officers of the National Oceanic and Atmospheric Administration in active service
*National Guard may be eligible for SCRA when the service is authorized by the President or the Department of Defense in response to a federally-funded and President-declared emergency that lasts for more than 30 consecutive days.
The Servicemembers Civil Relief Act – Know Your Protections and Benefits!
FAQ
Does SCRA apply to auto loans?
What is the 6% interest rate rule for SCRA?
What is the interest rate cap on a SCRA auto loan?
What is the maximum interest rate for military cars?
What is the SCRA interest rate limit?
One of the best things about the Servicemember’s Civil Relief Act (SCRA) is the interest rate limit provision. The federal law mandates that any debt you have before joining the military, either credit card, auto loan, or mortgage will have the interest rate limited to 6% while you are on active duty.
What are the SCRA rules & regulations for car loans?
Lenders must adjust interest rates on car loans taken out before servicemembers go on active duty.While service members are supposed to submit a written notice and military orders to their lenders to get
What is the SCRA interest rate cap?
One of the benefits of SCRA is a 6% interest rate cap on debt incurred prior to Active Duty. The 6% interest rate cap wouldn’t apply, however, to a loan you took out while on Active Duty or debt incurred during an Active Duty period. Navy Federal Credit Union made the decision to lower the SCRA interest rate cap as a service to our members.
How much interest does the SCRA charge on credit cards?
No more than 4% interest on credit cards, lines of credit, auto loans, home equity loans and more¹. No fees assessed on accounts, except bona-fide insurance. The SCRA covers all active duty Servicemembers, reservists and members of the National Guard while on active duty.