A grace period allows you to avoid interest or fees on borrowed money for a specified time. Grace periods differ by lender and loan type, but understanding them can save you money. Here’s what you need to know about periods.

How Does a Grace Period Work?

Lenders often provide grace periods, although they are not required by law. Each lender’s policies determine the details, which you can find in your account’s loan contract or cardholder agreement.

The way grace periods work varies by credit account type:

Revolving Credit: With credit cards and other revolving accounts, the period is the time between the billing cycle’s closing date and the payment due date.

Non-Educational Installment Loans: For mortgages, auto loans, and other non-educational installment debt, the period is a set number of business days after the due date. During this time, you can make a payment without incurring a penalty.

Student Loans: The grace period for student loans is the time between when you leave a full-time educational program and when you must start making scheduled loan payments. This period typically lasts six months.

Credit Card Grace Period: About 30 Days

Credit card grace periods usually last about 30 days, from the end of your card’s monthly billing cycle to the payment due date.

Early in this period, you receive your card statement, detailing your minimum required payment and statement balance. If you don’t carry a balance from the previous cycle, paying your statement balance in full each month lets you avoid interest charges.

What Transactions Qualify for a Grace Period?

If your credit card terms include a grace period, you can avoid interest payments on credit card purchases by paying your statement balance by the due date. However, grace periods do not generally apply to cash advances, which accrue interest from the day you make them.

Interest charges may begin immediately on new purchases if you carry a balance from previous cycles. If you have a 0% introductory APR for balance transfers, avoid using your card for purchases and pay off the transferred balance in full before the intro period ends to avoid interest charges.

Mortgage Grace Period: About 15 Days

Mortgage grace periods typically extend 15 days past the payment due date. Check your loan agreement or ask a customer service representative for specifics on your loan.

Payments made after the due date but before the period ends won’t trigger a late penalty. For example, if your mortgage payment is due on the seventh, payments received by the 22nd fall within the period.

Student Loan Grace Period: Six to Nine Months

The period for student loans starts after you leave school and lasts six to nine months, depending on the loan type. For most federal student loans, the period is six months. Federal Perkins loans offer a nine-month period.

The period begins when you graduate, leave school, or drop below half-time enrollment. If you re-enroll in school or join the military during this time, the period resets and starts again when you leave school or military service.

Grace Period vs. Deferment

Both grace periods and deferments allow delayed payments without penalties, but which is best for you depends on your loan type and situation.

Grace periods are part of your account agreements, giving you some flexibility on payments. Loan deferments, on the other hand, require negotiation with your lender to help you avoid defaulting during financial hardship. Deferments may accrue additional interest, and the repayment schedule for remaining payments may extend once deferment ends.

Do Payments Made Within the Grace Period Affect Your Credit?

No, payments made within the grace period won’t negatively impact your credit reports or scores.

Credit Cards: Payments made within the period are on time, which benefits your credit score.

Mortgages: Late payments aren’t recorded until they are 30 days past due. A mortgage payment within a 15-day period doesn’t affect your credit reports or scores.

Student Loans: Making on-time payments before the period ends benefits your credit scores. Taking full advantage of the period doesn’t hurt your credit.

The Bottom Line

Knowing the periods for your loans and credit card accounts helps you save on interest charges and avoid late fees. Understanding and using these periods wisely can improve your financial management and credit health.

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