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Everyday Cheapskate: What Is a Grace Period, and How Does It Work?

Mary Hunt on

Dear Mary: Is there a law that says how long the grace period must be? (And if you don't mind, exactly what IS a grace period?) -- Justin

Dear Justin: In the world of lending and borrowing, the "grace period" is the number of days between the time you make a credit card purchase and when you will begin to pay interest on that short-term loan.

Here's how it works:

When you pay your credit card balance in full during the "grace period," you don't have to pay any interest -- the operative words here being "in full." That means you pay the entire balance owing every month. If you don't pay the entire balance and instead roll it over to the next month, you forfeit the grace period until your balance returns to $0.

If you do not pay that credit card account balance right down to $0 every month before the due date, you forfeit the grace period, and interest commences the minute you make a purchase with that card.

Your credit card's grace period affects the interest you pay but does not change the due date. You're still required to pay by the due date to avoid late payment penalties. Paying late also causes you to forfeit your grace period and triggers a late fee and possible damage to your credit score.

 

Credit card issuers are not required by law to grant a grace period in their terms and conditions, however, most do. Some card issuers give 30 days to pay without interest, but a grace period of 20 or 25 days is more common. Some have no grace period at all.

Dear Mary: The ad promised a great interest rate, but when I got approved for the credit card account, my rate was much higher. Did I get scammed? -- Samantha

Dear Samantha: I don't know if I'd call it getting scammed, but you've definitely experienced the old bait and switch.

They drew you in with promises of a low interest rate (it was a tease) and got you to apply, and when they decided you didn't qualify for the better deal, they made the switch.

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