Grace Period

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DEFINITION of 'Grace Period'

A provision in most loan and insurance contracts which allows payment to be received for a certain period of time after the actual due date. During this period no late fees will be charged, and the late payment will not result in default or cancellation of the loan. A typical grace period is 15 days.

BREAKING DOWN 'Grace Period'

A grace period is usually the only a feature of a loan on which interest is calculated monthly, if it is calculated at all. Under some loan contracts, payments outstanding during grace periods are interest free, but the majority have interest compounding during the grace period. Be sure to check your loan contract for the specifics on any grace periods.

Credit cards for example, on which interest is calculated daily, do not have any grace periods.

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RELATED FAQS
  1. How does interest work on a cash advance from my credit card?

    Many credit card lenders treat interest on cash advances differently than interest on regular purchases. For starters, the interest ... Read Full Answer >>
  2. What's the difference between a grace period and a deferment?

    The major difference between a grace period and a deferment is when a borrower qualifies for each delayed payment option ... Read Full Answer >>
  3. What's the difference between a grace period and a moratorium period?

    A grace period falls between the time when a credit card billing cycle ends and when the payment is due. This grace period ... Read Full Answer >>
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