DEFINITION of 'Grace Period (Credit)'

The number of days between a consumer’s credit card statement date and payment due date when interest does not accrue. The grace period is a window of time during which a consumer owes money to a credit card company for new purchases made during the last billing cycle but isn’t being charged interest. The grace period only applies if the consumer paid his or her last credit card bill in full and on time and didn’t carry a balance for any portion of the previous billing cycle.

BREAKING DOWN 'Grace Period (Credit)'

Because federal regulations require credit card issuers to mail paper statements or deliver electronic statements (e-statements) at least 21 calendar days before the minimum payment due date, the grace period is usually about three weeks. If your statement is issued on the 31st of January and your payment is due on the 22nd of February, the grace period is the time between both dates. You will lose the grace period if you don’t pay your entire statement balance by the due date. The consequences of losing the grace period can be significant. Not only will you have to pay interest on the part of your balance you don’t pay off, you’ll also have to pay interest on new purchases as soon as you make them.

Also, the grace period usually does not apply to cash advances or balance transfers. Unless you are eligible for a 0% APR promotion, you will pay interest on these transactions from the day you incur them.

With some other types of bills, “grace period” refers to a time between the payment due date and the payment delinquent date when a late fee or other penalty applies. For example, while mortgage payments are due on the first of the month, there usually is no late fee as long as the payment is received by the 15th. A credit card grace period does not work this way; it does not extend your effective on-time payment window past the payment due date. You must pay your bill by the actual due date to avoid interest and late fees and retain your grace period for the next billing cycle.

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