Grace Period

Grace period summary:

• A credit card grace period is the period of time between the end of a billing cycle and the time when your payment is due.

• For most credit cards, if you pay your balance in full before the grace period ends, you won't pay interest on your purchases.

• A loan grace period is a period of time after your payment due date when you can make your payment and still be considered on time. 

Grace Period Definition and Meaning

A grace period is a period of time in which you do not face any financial penalties or added costs for not making a payment that is due. 

Grace periods apply for many kinds of accounts, including credit cards, student loans, mortgages, other loans, and insurance policies. 

Types of Grace Periods 

Grace periods work differently for different financial accounts. For example:

• A credit card grace period is the time after your billing cycle ends and before your payment is due. All credit credit cards are required to give you at least 21 days to pay. If your credit card has an interest-free grace period, you won't owe interest on your purchases if you pay before the end of the grace period.  

• A grace period for a mortgage or other loan is a period of time after your payment is due before you’re penalized for a late payment. If your payment is due on the 1st of the month and you have a 10-day grace period, you must make your payment on or before the 10th before it's considered late and you are charged a penalty. 

• A grace period for insurance is a set amount of time after your payment is due before you lose coverage for non-payment. You may have as long as three months before you lose coverage for certain kinds of policies, such as health insurance. 

• A grace period for student loans is the time after you graduate or drop below half-time enrollment when you don't have to make payments on student loans. The grace period can differ depending on whether you have federal or private loans, but could last six to nine months.

During the grace period, there are no consequences for not making a payment. When the grace period ends, then you could owe interest, penalties, and other fines or fees for not making your payment as required.

Real-Life Examples of Grace Periods

Here is how a credit card grace period might work:

• Your credit card billing cycle ends on the last day of the month. 

• The due date for your bill might be the 22nd.

• Your credit card has an interest-free grace period.

• If you pay the entire balance off by the 22nd,  you don't owe interest on any purchases you made with the card.

• If you don't pay off your bill in full, you'll be charged interest on your purchases at your credit card's standard APR. You could also lose your interest-free grace period the following month. Some credit card issuers require you to pay off your balance in full for at least two months in a row to get your interest-free grace period back.

• If you don't pay at least the minimum due by the end of the grace period, you could owe late fees and be charged a higher penalty APR.

Read your credit card or loan agreement, as it will specify what your grace period is so you can plan to take action before the time expires.