Understanding Loan Grace Periods

By: Peter Kenny

Almost all lenders use what is called the grace period. Loan sharks may not, but virtually every other lender will allow you a certain period to make your payment without being assessed late fees. Consumers who have loans should know what the grace period is for each loan and should also know why it is important to always stay within that period when paying on the loan.

Generally speaking, a grace period is the number of days you have in order to pay your bill in full without incurring a finance charge. An example of this might be if the card company states you have 25 days from the statement date to pay your previous balance in full by the due date. The important words here are "in full".

Consumers should understand that the number of days allowed in the grace period do not begin when they open the envelope but rather on the date that is contained on the statement. The statement date will always be given on the bill, and that is the date that you need to use when calculating the grace period.

The number of days that a company will give as its grace period can vary a great deal from one company to another. Consumers should not automatically assume what each company allows. The only way to know for sure what the grace period is for a particular company is to read the statement.

If you pay your balance before the end of the grace period you will not have to pay additional finance charges. For many consumers this is the best way to save a lot of money especially when dealing with credit card debt.

Grace periods, however, are not automatic. For instance, you will rarely see a grace period allowed for cash advances on credit cards. In most cases, you will have to pay some amount of finance charge for a cash advance no matter how quickly you pay the advance off. The same is true for some balance transfers. Consumers should also understand that cash advances on credit cards often have their own interest rate which can be significantly higher than the interest rate that is charged for purchases. Before taking out a cash advance, it is always best to know what you will be charged on the advance. This can help you avoid problems later on when the bill arrives. While most companies do not allow grace periods for cash advances you should at least check to see if your credit card company does.

Consumers should also understand that if they have carried over a balance on a credit card any new purchases on the card may not be covered by a grace period. To fully understand how your credit card company handles this situation you should read the card literature or statement. This information is usually located in an area that is called "method of computing balance of purchases".

Some of the terminology that is used in these sections can be somewhat confusing. Should you not understand it, call the company and ask for guidance.

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