What is a Grace Period?

A grace period is like showing up a minute or two late when meeting friends…

If you’re meeting up with friends and plan to meet at noon, your friends typically won’t mind if you show up at 12:01 or 12:02 instead of precisely at noon. They’ll forgive you automatically because it isn’t a big deal. A grace period is similar. If you make your payment a day or two past the due date, the company sending you the bill might forgive the lateness and not charge a fee or damage your credit report.

In general, a grace period is a period during which you are forgiven for missing a due date. For example, if you have a school project due on February 4th and your teacher offers a one-day grace period, you can submit your project on the 5th without penalty.

In the world of finance, there are a few types of grace periods. For example, if you have health insurance through a marketplace and miss a payment, you don’t immediately lose your coverage. You typically have a grace period of 90 days to pay the amount that you owe. If you make your payment before the 90 days elapse, you won’t lose your insurance. Despite missing the due date, you aren’t penalized with the cancellation of your coverage.

Grace periods can also apply to debts, such as credit card debt. When you make a purchase using your credit card, the card issuer adds the amount of your purchase to your balance. However, the issuer doesn’t start charging interest right away. Once your statement period ends, the card issuer sends you a bill. If you pay your bill, in full, before the due date, the card issuer won’t charge any interest payments based on your balance. Your grace period lasts from the close of your statement through the day you must pay your bill.

Credit cards typically offer a grace period for new purchases but don’t provide a grace period for balance transfers or cash advances. They’ll start charging interest on those balances immediately.

Other loans also can have grace periods. For example, some student loans do not start charging interest until a set number of months after you leave college.

A grace period works by giving you some time to pay your bill before you incur interest charges, fees, or other penalties.

For credit cards, when you make a purchase, the card issuer automatically adds the amount of your purchase to your balance but does not send you a bill until your card statement closes. If you pay your bill, in full, by the due date, the card issuer won’t charge any interest.

It’s important to note that not every credit card issuer offers a grace period. If the card issuer wants to begin charging interest immediately, they may, but most cards do give cardholders a grace period. For cards with a grace period, it must be no shorter than three weeks.

Even for credit cards that come with a grace period, card issuers frequently exclude certain transactions from that period. For example, if you use your credit card to get a cash advance from an ATM, most card issuers start charging interest immediately.

If you do not pay your card balance in full, you’ll start accruing interest based on the balance of your card. On top of that, you’ll lose the grace period for new purchases, which means the card issuer will charge interest on new purchases as soon as you make them. That makes paying your card’s bill in-full, even more critical.

Yes, a credit card grace period includes weekends. If a credit card issuer offers a grace period, it must make it at least 21 calendar days from the day your statement closes. Weekends count as part of those 21 days, making the minimum grace period three weeks.

If you have a student loan or another loan with a grace period, the end date of the grace period is usually known in advance, which means that weekends are part of the period.

If your payment due date or the end of the grace period falls on a weekend day or holiday when the biller does not accept payments, you get one extra day to make your payment. As long as the billing company receives your payment by 5:00 pm the day after your holiday due date, they’ll count your payment as timely.

This only applies if the billing company doesn’t accept payments on that day, and you send a check through the mail. If you make electronic payments, and the biller accepts electronic payments on holidays and weekends, you don’t get the extra day.

Using your grace period isn’t a bad thing. It’s one of the things that makes credit cards so useful, allowing you to buy something and cover the full cost at a later date.

Many people use their grace period without thinking about it. If you’re not paying your credit card balance before your statement closes, you’re using your grace period. Using your grace period is part of regular credit card usage, even if you pay your bill in full each month.

Two things make paying your full credit card bill during the grace period critical.

The first is that failing to pay your full bill results in interest charges. If you don’t make any payment, the lender could charge late or missed payment fees. If you make a partial payment, the lender will start adding interest charges to your balance. That means you’ll have to pay more than the cost of the thing that you purchased, making it more expensive.

The second is that carrying a balance from month to month on a credit card or line of credit could cause you to lose your grace period. If you carry a balance, many card issuers will start charging interest on new purchases as soon as you make them. That adds even more interest charges to your balance.

The primary difference between a grace period and a deferment is how you receive one or the other.

If your loan has a grace period, you do not need to make payments until the end of the grace period. You receive a grace period automatically for loans that offer them.

If a loan, such as a student loan, has a deferment period, you can apply for deferment with your loan servicer if you meet specific requirements. Like a grace period, a deferment gives you some time before you have to make a payment. Most grace periods let you avoid adding interest to your balance, while a deferment usually does not.

Many student loans include a grace period where you do not need to make monthly payments. For federal student loans, the grace period is usually six months from the day that you graduate or fall below half-time student status.

Depending on the type of loan you have, the loan may or may not accrue interest. Unsubsidized loans accrue interest while subsidized loans generally don’t. If the loan accrues interest, you might want to make student loan payments during the grace period if you can.

Some loans, like PLUS loans, don’t include grace periods, so it’s essential to read the fine print for each loan you have.

For most student loans that offer a grace period, that grace period ends a set time after your student status changes. Typically, that means taking less than half a class load or graduating.

There are two ways to extend your grace period.

One is returning to school. If you enroll at half-time student status or higher, you’ll get a new six-month grace period when you again fall below half-time status.

The second is joining the military. Active-duty military members get a grace period equal to the length of their active-duty assignment plus six months, as long as their time on-duty lasts at least 30 days.