What Is a Grace Period?

Sometimes, your late payment isn't really late. And sometimes it's possible to use credit cards and pay no interest at all. Both of these bits of financial savvy have their roots in the grace period. A grace period could help you manage your finances and save money. 

Grace Period Defined

A grace period is a window of time when you may make a payment without a negative consequence, such as interest charges, late fees, or other penalties. Late payments are a hallmark of financial hardship and could mean you're a candidate for debt relief.

Grace periods are common for a variety of payments. These include credit card payments, mortgage and other loan payments, and utility payments.

How Does a Payment Grace Period Work?

Now and then, there’s bound to be a delay between when a payment first comes due and when you could make that payment. A payment grace period acknowledges this by giving you time to make the payment without considering it late.

This might work in a couple of different ways:

• If you're sent a bill for payment, you owe the money. The payment deadline is typically a specific date in the future, or something like 30 days after the billing date. You're in the grace period.

• On a loan, the grace period is a number of days after the payment deadline when you could still make a payment that's not considered late. For example, payments may be due on the last day of each month, and the grace period could extend until the 15th of the following month. Not all loans have a grace period.

Review your billing statements or loan agreements carefully so you know exactly when your grace periods end. That way, you could try to make sure the money is available by then.

Once you know your grace periods, you can use them to plan ahead and make the payments within those times.

If you don't pay within the payment grace period, you might be hit with late fees and extra interest charges. Creditors might also report your late payments to the credit bureaus, which could hurt your credit score. If you're late often, the service provider could even cancel your account.

Why Is the Grace Period Important?

The grace period gives you extra time to make a payment without additional cost. Pay by the end of the grace period, and you could avoid the following costs:

• Extra interest charges

• Penalty interest rate (a higher interest rate that applies to your entire balance)

• Late fees

• Credit score damage if creditors report your late payment to the credit bureaus

Grace periods give you time to pay. If you know your grace periods, you have more flexibility to avoid extra charges.

Types of Grace Periods

Here’s how grace periods work for some different types of payments:

Credit card grace periods: How long are they?

The law requires credit card issuers to give you a grace period of at least 21 days after the end of your billing cycle before the payment is due. Some grace periods are longer. 

You can find out your credit card grace period two ways. First, it should be in the credit card agreement you originally signed when you opened the account. Understandably, you might not have a copy handy. That’s okay. The other way to find out your grace period is to review your monthly statements. Each one will tell you what day your billing cycle ended, and what day your payment is due. Those two dates should be at least 21 days apart.

How a credit card grace period could save you money

On most credit cards, if you fully pay off your purchases by the payment due date, you won’t pay any interest on those purchases. The interest-free grace period is effectively the entire time between the day you made the purchase and your payment due date.

The interest-free grace period applies to purchases. It typically doesn’t apply to cash advances, balance transfers, or other transactions. 

Also, if you don’t clear your entire balance, you could lose the grace period for the following month. For some cards, you’ll need to maintain a zero balance for two months or longer before your interest-free grace period returns.

Loans and other grace periods

Some loans give you extra time after the due date to make a payment without incurring a late fee or other penalty. But interest may continue to accrue during this period.

Mortgages

For mortgages, the grace period is often around 15 days. So, for example, if your regular payments are due on the last day of each month, you would have until the 15th of the following month to make your payments. 

Your loan agreement spells out the grace period for a loan. Make note of this, and plan your payments accordingly. The grace period could come in handy if, say, you’re paid every other Friday and your next payday happens to be on the 5th.

Student loans

Student loans have a grace period that gives you time after you leave school before payments are due. For most federal student loans, this grace period is six months. The grace period could begin when you graduate, leave school for any reason, or scale back your coursework to less than half-time.

Rent and bills

Rent isn't a loan. It could still come with a grace period. Check your rental agreement for the exact grace period, which is often three to five days after the due date.

Grace periods for other bills, such as utilities or your cell phone, vary. Review the agreement you signed, or contact the provider to ask. Each monthly billing statement should list the date by which you must submit payment.

Insurance premiums

Insurance policies often include a grace period for premium payments. If you have a Marketplace health plan and use a premium tax credit, the grace period is usually three months, as long as you've already paid for one full month of coverage. Grace periods for other insurance policies vary by state and by insurer. If you pay within the grace period, your coverage stays active. If you don't pay by the end of the grace period, your insurer could cancel your policy. Review your policy documents or contact your insurer to confirm the exact grace period that applies to you.

How a Grace Period Differs From a Deferment

A grace period is not the same as a deferment. A grace period is a set window built into your original agreement, and it applies automatically once you sign the contract. A deferment pauses your payments for a longer stretch, such as during active duty military service or a return to school, and you typically need to request it from your loan servicer before it takes effect. Interest treatment during a deferment depends on your loan type. Your balance could continue to grow, or interest could pause, depending on the terms of your agreement. A grace period keeps you on schedule for a few extra days. A deferment may give you a longer pause when a bigger disruption gets in the way.

How to Use Your Grace Period to Your Advantage

Here are some ways you could make sure you use your grace periods successfully.

• Time larger purchases at the beginning of your statement billing cycle. That gives you the maximum amount of time to pay it off before the interest-free grace period ends.

• Pay off your credit card balance every month by the due date. That way, you protect your interest-free grace period. If you can't pay off your balance, pay down as much as possible each month.

• Before you finish school, make a clear plan for how you’ll find a job before your grace period ends and your loan payments start. 

• Plan your cash flow to make sure money is available when you need to make your payments. Use automatic payments carefully unless you know you’ll have money in your account by the due date and won’t have to use your payment grace period.

How to Track Your Own Grace Periods

Now that you understand how grace periods work, it's time to find out exactly what yours are:

• Check the grace period in any new credit or service agreement you sign. For accounts you already have, review a monthly statement or contact the provider.

• Make a detailed list of all your regular bills for reference. Include the amounts you expect them to be, what their due date cycle is, and the length of the grace period.

• Don't wait until the last day of the grace period to make a payment. Leave yourself a little room for unexpected events.

Think of grace periods as an opportunity. They give you a little extra wiggle room. You could use that opportunity to your advantage.