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Grace period

Grace period is a financial term it pays to understand. Bankrate explains it.

What is a grace period?

A grace period is a period of time creditors give borrowers to make their payments before incurring a late charge or risk defaulting on the loan. There are two types of grace periods. The first refers to a period of time beyond the due date that the lender gives customers to make their payments. The second applies to a period of time when a creditor does not charge interest on the account balance.

Deeper definition

Borrowers should review their loan documents and agreements with creditors to learn more about grace periods that apply to the accounts. For credit cards, the grace period is the time between the end of the billing cycle to the due date, and during this time the account does not accrue interest on the balance. Student loans also have a grace period between the time the student graduates or stops attending school and when the loan repayment begins.

Lenders do not have to give borrowers grace periods. However, under the provisions of the CARD Act of 2009, borrowers have at least 21 days to pay their bills.

Grace period example

You can see one example of a grace period on your mortgage statement. In addition to the payment amount and due date, you should see an alternate amount due if you make the payment after a certain date. In most cases, the lender gives you 15 days to pay the monthly amount before it adds a late fee.

Use our compound interest calculator to see how consistent savings can build over time.

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