What is grace period?

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Grace period is the time provided by financial firms for those with loans to settle their obligation after the due date has already lapsed. Those who settle their obligations within the grace period are not required to pay late fee charges, and their loans will not be cancelled nor considered as in default.

Most financial institutions provide a 15-day grace period. But credit card companies typically do not have grace periods.

Example of grace period

For example, a person who availed of a house mortgage has to settle his or her monthly amortization every 15th of the month. If the bank gives a 15-day grace period, and then the person with the loan can settle the monthly payment until the 30th day of the month before the bank charges a late fee.

The loan is still considered good, and not in default as long as the person who borrowed money settles the monthly payment within the 15-day grace period.

Interest payments

Some financial institutions do not charge interest for the monthly payment that was paid outside the due date but within the grace period.

Take the example above, if the person was able to settle the monthly payment before the 30th of the month, then he or she will not be required to pay additional interest on the monthly installment (the interest on the loan is already included in the monthly installment amount).

Payment of additional interest for settling obligations within the grace period depends on the loan contract. Some lenders would charge interest for payments that are delayed but settled within the grace period while other lenders will not charge additional interest.

Credit cards, as we have mentioned, do not have grace periods. Credit card firms also charge additional interest for late payments since interest for credit card is calculated daily.