Grace period

The term names two different windows, depending on the account. On a credit card the grace period runs from the day the statement closes to the day the payment is due, and it is the reason a card can be used all month without costing a cent of interest. On a loan, a lease or a utility bill it runs the other way, from the due date to the last day a payment can arrive before a late fee is charged. A card's grace period is kept by paying the statement balance in full by the due date and lost the first month a balance is carried, and a loan's grace period spares the late fee, not the interest, which on a car or personal loan keeps accruing day by day.

In a sentence

• "We pay the statement in full every month, so the grace period means the $975 we put on the card cost nothing in interest."
• "Once she carried a balance, the grace period was gone, and the next statement charged $19.51 on the $950 she still owed."
• "A grace period on a car loan is about the late fee, not the interest: the fee waits ten days, the interest does not wait at all."

How it works

On a card, the window works like this.

1. The statement closes the cycle with its purchases, the statement balance and a due date at least 21 days later; most cards allow 21 to 25.
2. Pay the statement balance in full by the due date and no interest is charged on any of those purchases.
3. Pay less than that and interest is charged on the unpaid part, and the grace period is gone: new purchases accrue interest from the day they are made, at the APR divided by 365.
4. It comes back once a statement balance is again paid in full by the due date; some cards require two consecutive full payments.
5. Cash advances never have one. Interest on an advance runs from the day it is taken, at the cash advance APR; balance transfers usually run the same way unless a promotional rate applies. See Cash advance.

On a loan or a bill there is nothing to keep or lose: the window is in the contract, and a payment inside it is on time as far as the fee is concerned.

An example

A card with a 24.99% APR, the example's assumption. The billing cycle runs February 6 to March 5, the statement closes at $975 on March 5, and the payment is due March 30, a 25-day grace period.

At 24.99% the daily rate is about 0.0685%, so a $200 purchase made twenty days before the next statement closes accrues $2.74 before it appears on a statement, because the grace period no longer covers it. On a loan the arithmetic is a fee rather than a rate: a $1,800 mortgage payment due on the 1st with a fifteen-day grace period costs nothing extra on the 12th and, under this example's loan terms, a 5% late fee of $90 on the 20th.

Why it matters

The card's grace period is the difference between a card that is a way to pay and a card that is a loan. Kept, it is an interest-free float on every purchase, up to about eight weeks. Lost, the same card charges interest on the carried balance and on every new purchase from the day it happens, and the interest keeps the balance from falling as fast as the payments suggest. The loan grace period settles a smaller question, which day of the month the payment can safely leave checking. Knowing both windows prevents two costs paid for nothing: a fee on a payment one day late, and a month of interest because the statement was paid a few dollars short.

Grace period versus a deferment or a 0% promotional period

All three are stretches in which no interest is charged, for three different reasons. A grace period charges nothing because the balance was paid in full inside the window; it is earned every month and lost the month a balance is carried. A promotional 0% APR charges nothing because the rate itself is zero for a set number of months, whatever is paid, and the regular rate applies to whatever is left when it ends. A deferment, on a student loan, pauses the payments rather than the interest, which on most loans keeps accruing and is added to the balance when payments resume. A deferred-interest offer, "no interest if paid in full in 12 months", charges interest back to the purchase date if any balance remains at the end. See APR for how a promotional rate ends.

Common questions

Is a grace period the same as a billing cycle? No. The billing cycle is the month of purchases the statement covers; the grace period is the window after the statement closes in which paying the full balance avoids interest on that cycle's purchases. A purchase on the first day of a cycle can be interest-free for about eight weeks, one on the last day for about three. See Billing cycle.

Why was I charged interest after paying my statement in full? Because the previous statement was not. Once the grace period is lost, interest accrues daily until the payment arrives, and that residual interest lands on the following statement even after a full payment. One more full payment clears it.

Is a payment inside a loan's grace period reported as late? No. The fee is what the grace period spares, and lenders generally report a payment as late only once it is thirty days past due, well after most grace periods end.

What is a good grace period? On a card, the longer the better; the length is in the card's terms, commonly 21 to 25 days from the statement date. What matters more than the length is keeping it, by paying the full statement balance every month, ideally by autopay set to the statement balance rather than the minimum.

Go deeper

• How to budget with a credit card without overspending budgets each purchase on the day it happens and autopays the full statement, which is what keeps the grace period.
• What happens when you pay a bill late, from grace periods to late fees prices the fee at the end of each kind of bill's grace period and the thirty-day line after it.
• The Credit card payoff calculator shows how long a balance takes to clear at the payment you make now and what the interest costs once the grace period is gone.