What is a Grace Period?
A grace period is a period of time past the deadline for a financial obligation during which a late penalty that would have been imposed is waived. Grace periods can vary in terms of length. Depending on the context, some can last only a few minutes and some can stretch on for days. For example, if you are a few minutes late for work, your boss may not reprimand you due to a 5-minute grace period.
If you don't pay your credit card bill on time, you may have a 21-day grace period before the credit card company begins charging interest or late fees. If the credit card issuer has a grace period, by law, it must last at least 21 days. In terms of credit cards, the grace period typically only applies to new purchases - cash advances and balance transfers are not included, so interest charges will start right away.
How Different Grace Periods are Handled
Different companies or organizations handle grace periods in their own way. Sometimes, if you are past due, but you meet the obligation within the designated timeframe, you will not be penalized and your reputation will not be tarnished in any way. In other instances, you may receive a partial penalty such as a small late fee if you do not pay your bill by the due date, but service will not be cut off until a longer period of time has passed. In other cases, some companies might suspend certain privileges during the grace period. If you fail to pay the rent for your storage unit one month, you won't be charged a late fee, but you might not be able to access your items until the bill is paid.
If you are diligent when it comes to paying your bills on time, but an unexpected circumstance causes you to miss a payment from time to time, a grace period is certainly beneficial. You can avoid a penalty and maintain your reputation as a conscientious consumer. Grace periods can be a disadvantage if you view the last day of the grace period as the actual deadline. If you procrastinate on a regular basis and fail to pay even after the grace period has expired, you will undoubtedly be facing a slew of penalties and/or fees.
Grace Period for Loans
In terms of loans, during the grace 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 for a loan is 15 days, so you have about two weeks after your due date to pay in full without penalty. If interest is calculated at all during the grace period, it is calculated on a monthly basis. Some loan contracts state that payments made during the grace period are interest free, but most have interest compounding during the grace period. Be sure to check the specifics of your loan in order to know what to expect if you need to take advantage of the grace period.