“What is the Grace Period?”
When discussing student loans, the chances of the grace period being brought up are quite high. Along with deferment periods, this particular stretch of time is something to be aware of in regards to loans and payments.
What does it entail?
A “grace period” is an established length of time following the due date during which the payment can be made without penalty. These periods – usually lasting 15 days – are often included in contracts for mortgage loans and insurance. Additionally, they allow a borrower or insurance customer to stall the payment for a short time after the due date.
During this period, there are no late fees charged. Moreover, the delay is unable to lead to loan default or contract cancellation. Payments beyond the due date but during the grace period do not result in a black mark being attached to the borrower’s credit report.
When it comes to defining a grace period on a loan, most credit cards do not have grace periods for their monthly payments. A late payment penalty is promptly included following the due date and interest will continue to be compounded on a daily basis.
In regards to credit cards
As mentioned already, there is no requirement for credit card companies to give a grace period. However, there are plenty of credit cards that offer grace periods on purchases.
If your card provides a grace period and you are not currently carrying a balance, then you can avoid paying interest on new acquisitions. That is if you pay your balance in full once the due date rolls around. If you lose your grace period by not fully paying your balance by the due date, you will be charged interest on the balance’s unpaid portion. Additionally, you will be charged interest on purchases in the new billing cycle starting when those purchases are made.
Credit card companies need to establish procedures to ensure the mailing of their bills. Furthermore, their delivery to you is at least 21 days before the payment’s due date.
With credit cards, grace periods will usually only apply to purchase transactions. Using your card to acquire a cash advance or using a check from your card issuer means that you have to start paying interest as of the transaction’s date.
Deferment periods: what’s the difference?
Much like grace periods, a deferment period is when a borrower is not required to make loan payments, often during times of financial hardship. However, unlike grace periods, deferment is typically not automatic. Borrowers have to request or apply for a deferment, as well as provide documentation to explain why they cannot make payments. Oftentimes, loans continue to accumulate interest throughout a deferment. Therefore, during these periods, it would be smart to make any payments that you can.
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