Find out what a grace period is, how it works, what the different types are and how long they last, and how they affect you!

With your everyday obligations and turmoil, it’s easy to miss a due date. Thankfully, many lenders offer a grace period, a short window of time after the due date where you can still make a payment without penalty.

Let’s explore how they work for different types of loans, so it can help you if you ever find yourself in this situation! Also, if you want to check out more financial tips on our website, you can click on this link!

What Is A Grace Period?

It is a courtesy given by lenders that allows you to make a payment after the official due date without incurring late fees or penalties. Look at is as a buffer zone that gives you some breathing room in case you forget about a payment or encounter a temporary financial hurdle.

The length of this period varies depending on the type of loan and the specific lender. However, it is usually between 15 and 30 days following the due date, but it can be shorter or longer.

How Does a Grace Period Work?

Let’s use a credit card bill as an example. Imagine your credit card statement closing date is the 1st of every month, and the payment due date is 20 days later, on the 21st. If you make your payment by the end of the grace period, it’s considered on time, and you won’t be charged any late fees. Keep in mind that, they aren’t exclusive to credit cards, being present in many loans and financial products, each with its own specific terms, such as:

• Revolving Credit: with credit cards and other revolving accounts, the period usually refers to the time between the end of a billing cycle and the deadline for paying the bill for that cycle;
• Non-Educational Installment Loans: the grace period on mortgages, auto loans and other non-educational installment debt, is a specific number of business days after the due date. For example, the period for mortgages typically extend 15 days past the due date;
• Student Loans: the grace period begins when you finish a full-time educational program and ends when you’re required to start making regular loan payments. For example, for most federal student loans, the period is six months.

Does It Affect Your Credit Score?

Making a payment within the grace period doesn’t impact your credit score. It’ll only affect it if you don’t make the payment before the grace period ends, so as long as it’s paid in time, you’re in the clear.

Tips

• Familiarize yourself with the specific grace periods offered by your lenders for each of your financial products;
• Avoid relying solely on memory. Set up automatic payments or reminders to ensure you don’t miss a due date;
• If possible, consider paying more than the minimum amount due during the grace period. This will help you reduce your overall loan balance and potentially save on interest charges in the long run;
• If you foresee difficulty making a payment, even within the grace period, contact your lender as soon as possible. They might be able to offer hardship programs or alternative repayment options.

Grace Period vs. Deferment

While both of them offer temporary relief from loan payments, there are key differences:

• Grace Period: a short-term courtesy offered by the lender. It typically lasts for a few weeks and doesn’t require any special application;
• Deferment: a longer-term postponement of loan payments, often lasting for months or even years. Deferments are typically granted based on specific circumstances, such as financial hardship, military service, or enrollment in an income-driven repayment plan. Deferring your loan payments might come with additional interest charges and could extend the overall repayment term.