Grace Period


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.

  1. Mortgage

    A debt instrument, secured by the collateral of specified real ...
  2. Benefit Period

    The benefit period is the length of time during which a benefit ...
  3. First-Loss Policy

    A type of property insurance policy that provides only partial ...
  4. Adequate Notice

    A written document that specifies in detail the terms and conditions ...
  5. Premium

    1. The total cost of an option. 2. The difference between the ...
  6. Past Due Balance Method

    A system for calculating interest charges based on any outstanding ...
Related Articles
  1. Savings

    Financial New Year's Resolutions You Can Keep

    Start the year off right by evaluating your financial health and setting impactful and achievable goals.
  2. Economics

    How Interest Rates Affect The Housing Market

    Understand how rate changes can affect home prices, and learn how you can keep up.
  3. Credit & Loans

    College Loans: Private Vs. Federal

    Not all student loans are the same. Know what you're getting into before signing on the dotted line.
  4. Budgeting

    Are You Living Too Close To The Edge?

    If a missed paycheck will make your finances cave in, you must learn how to make proper supports.
  5. Home & Auto

    Option ARMs: American Dream Or Mortgage Nightmare?

    Option adjustable rate mortgages could make or break your home-buying experience.
  6. Insurance

    Explaining Indemnity Insurance

    Indemnity insurance is an insurance policy that protects business owners and employees from losses due to failure to deliver expected services.
  7. Insurance

    What is a Force Majeure?

    A force majeure clause frees both parties in a contract from fulfilling their obligations in the event of some catastrophic or unexpected occurrence.
  8. Credit & Loans

    Explaining Equated Monthly Installments

    An equated monthly installment is a fixed payment a borrower makes to a lender on the same date of each month.
  9. Insurance

    How Car Insurance Companies Value Cars

    Learn the methodology used by car insurance companies to value cars, and understand why the amount they give you may not cover the cost of a similar vehicle.
  10. Retirement

    The Better Way to Save: Life Insurance or IRA?

    Sure, you can tap your permanent life insurance policy to help fund your retirement. But in most cases, an IRA is the better choice. Here's why.
  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 >>
  4. What is the difference between a peril and a hazard?

    The two related terms "peril" and "hazard" are often used in reference to the insurance industry. Essentially, a peril is ... Read Full Answer >>
  5. What level of reserve ratios is typical for an insurance company to protect against ...

    In the United States, and most developed nations, regulators impose required statutory capital reserve ratios on insurance ... Read Full Answer >>
  6. What risks do I face when investing in the insurance sector?

    Like all equity investments, insurance companies present investors with market risk. Insurance companies, like banks, also ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Capitalization Rate

    The rate of return on a real estate investment property based on the income that the property is expected to generate.
  2. Gross Profit

    A company's total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company ...
  3. Revenue

    The amount of money that a company actually receives during a specific period, including discounts and deductions for returned ...
  4. Normal Profit

    An economic condition occurring when the difference between a firm’s total revenue and total cost is equal to zero.
  5. Operating Cost

    Expenses associated with the maintenance and administration of a business on a day-to-day basis.
  6. Cost Of Funds

    The interest rate paid by financial institutions for the funds that they deploy in their business. The cost of funds is one ...
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!