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In this article:
- How Does a Grace Period Work?
- Credit Card Grace Period: About 30 Days
- Mortgage Grace Period: About 15 Days
- Student Loan Grace Period: Six to Nine Months
- Grace Period vs. Deferment
- Do Payments Made Within the Grace Period Affect Your Credit?
A grace period is a stretch of time during which you are not charged interest or fees on money you've borrowed. The length of grace periods can differ by lender and loan type, and working within the ones that apply to your accounts can save you money. Here's what you need to know about grace periods.
How Does a Grace Period Work?
Grace periods are not required by law, but many lenders provide them. Details may vary according to each lender's policies, but specifics on their duration and application are spelled out in each account's loan contract or cardholder agreement.
The ways grace periods work also differ according to the type of credit account in question:
- Revolving credit: With credit cards and other revolving accounts, the grace period typically is the length of time between the closing date of a billing cycle and the due date of the payment associated with that cycle.
- Non-educational installment loans: The grace period on mortgages, auto loans and other non-educational installment debt is a set number of business days after the payment due date, during which the lender will accept payment without penalizing you.
- Student loans: The grace period on student loans is an interval, typically (but not always) lasting six months, between when you exit a full-time educational program and when you must start making scheduled loan payments.
Credit Card Grace Period: About 30 Days
Credit card grace periods typically stretch about 30 days, from the end of your card's monthly billing cycle (also known as the statement closing date) to the day the payment for that billing cycle is due.
Early in that interval is when you typically receive your card statement, specifying your minimum required payment for the month and your statement balance—the sum of all purchases made during that billing period, plus any balance and interest carried forward from previous cycles. If you aren't carrying a balance forward from a previous cycle, your grace period typically means you can avoid interest charges by paying the statement balance in full each month.
What Transactions Qualify for a Grace Period?
If your credit card terms include a grace period, you can usually avoid interest payments on credit card purchases by paying your statement balance on or before the due date each month. Note, however, that a credit card contract can specify that its grace period applies to both regular purchases and balance transfers, only to balance transfers or only to standard purchases. Also note that grace periods do not generally apply to cash advances, which typically accrue interest from the day they are made.
Many cardholder contracts also specify that interest charges begin accruing immediately on purchases you make if your card has an outstanding balance carried forward from a previous billing cycle. In other words, if you are carrying a balance from past cycles—including balance transfers or cash advances—your grace period may not apply to new purchases until you've once again paid your statement balance in full. Check your cardholder contract for details.
If your card has a 0% introductory annual percentage rate (APR) that applies to balance transfers but not regular purchases, not using it for purchases and paying off the transferred balance in full before the end of the intro period can allow you to avoid interest charges.
However, if you make a late payment during the introductory period, some card contracts call for switching from the intro rate to the standard purchase interest rate (or an even higher penalty rate). What's more, some cards apply the higher rate to the entire transfer amount—not just the portion that remains unpaid—retroactive to day one. Be sure to understand the terms of any balance transfer you make, and plan accordingly to avoid interest charges.
Mortgage Grace Period: About 15 Days
Mortgage grace periods typically extend 15 days past the due date for a given monthly payment. Mortgage grace periods can vary by loan servicer. Check your loan agreement or ask a customer service rep for details on your loan.
A payment made after the due date but before the end of the grace period does not trigger a late penalty charge. For instance, if your mortgage payment is due the seventh of each month, payments received on or before the 22nd of the month would fall within the grace period and avoid a late fee.
Student Loan Grace Period: Six to Nine Months
The grace period on a student loan is the amount of time after you leave school before you're required to begin repaying the loan in monthly installments. For most federal student loans, the grace period is six months. Federal Perkins loans offer grace periods of nine months. The length of the grace periods on private student loans may differ by loan issuer, but they often span six to nine months.
Student loan grace periods typically begin when you graduate, leave school for any other reason or if you scale your enrollment back to less than half time. Your first payment is typically due within 60 days after the grace period ends.
If you re-enroll in school, enlist in the armed services or scale up your course load to more than half time during the grace period on a federal student loan, a full six-month grace period will begin again when you exit the next phase of your education or leave military service.
Grace Period vs. Deferment
Both grace periods and deferments can allow payments to be made after their due dates without penalty, but which is best for you will depend on the type of loan and your circ*mstances.
As described above, grace periods are built into your account agreements and can give you a little wiggle room on payments when you need it. Loan deferments, in contrast, are arrangements you work out with a lender to help you get through a rough financial patch without the risk of defaulting. (Deferments can be arranged with credit card issuers as well, and are also referred to as forbearance.)
Loan deferments can happen without your intervention—as in the case of student loans with automatic deferments that kick in if you re-enroll at a college or university at least half time—but most loan deferments require a negotiation or application process. If your lender agrees to a deferment, you may avoid late payment penalties but accrue additional interest. The repayment schedule for remaining payments may also be extended once deferment ends.
Do Payments Made Within the Grace Period Affect Your Credit?
No, payments made within the grace period for any loan type will not have any significant impact on your credit reports or the credit scores based on them.
- Credit cards: A credit card's grace period ends on the payment's due date, so any payment made during that interval will, by definition, be on time. All timely payments tend to benefit your credit scores, but otherwise this will not have a significant effect on your credit score.
- Mortgages: Late payments on mortgages (and other types of loans or credit) are not recorded on your credit reports until they are 30 days past due, at which point they can have a significant negative effect on credit scores. A mortgage payment made within a grace period of up to 15 days after its due date, therefore, has no effect on your credit reports or scores.
- Student loans: If you begin monthly payments on a student loan before the end of its grace period, each on-time payment will tend to benefit your credit scores, but taking full advantage of the grace period before you begin making payments won't hurt your credit.
The Bottom Line
Familiarizing yourself with the grace periods that apply to your loans and credit card accounts can help you save on interest charges and avoid late fees. When it's time to seek a new loan or credit account, checking your FICO® Score☉ for free from Experian can help you know how favorably lenders will view your credit application.
