What is a Grace Period (Credit)

A grace period (credit) is the number of days between a consumer’s credit card statement date and payment due date when interest does not accrue. The grace period is a window of time during which a consumer owes money to a credit card company for new purchases made during the last billing cycle but isn’t being charged interest. The grace period only applies if the consumer paid his or her last credit card bill in full and on time and didn’t carry a balance for any portion of the previous billing cycle.

BREAKING DOWN Grace Period (Credit)

Grace periods are usually about three weeks as federal regulations require credit card issuers to mail paper statements or deliver electronic statements (e-statements) at least 21 calendar days before the minimum payment due date. For example, if a statement is issued on January 31st and a payment is due on February 22nd, the grace period is the time between both dates. Cardholders will lose the grace period if they don’t pay your entire statement balance by the due date.

The consequences of losing the grace period can be significant. The cardholder will not only have to pay interest on the part of the balance not paid off, but also on new purchases as soon as they make them.

Grace periods usually do not apply to cash advances or balance transfers. Unless eligible for a 0% APR promotion, cardholders will pay interest on these transactions from the day incurred.

How Grace Periods Apply to Other Debt

With some other types of bills, grace period refers to a time between the payment due date and the payment delinquent date when a late fee or other penalty applies. For example, while mortgage payments are due on the first of the month, there usually is no late fee if the payment is received by the 15th.

A credit card grace period does not work this way; it does not extend your effective on-time payment window past the payment due date. Cardholders must pay their bill by the actual due date to avoid interest and late fees and retain the grace period for the next billing cycle. Student loan borrowers can also take advantage of a grace period. In this case, college graduates can delay the start of loan repayment up to six months. This waiting period after graduation and before repayment begins is known as a grace period. Grace periods can be extended for up to three years if a borrower is serving on active duty in the Armed Forces.