What Is a Credit Card Grace Period?
What to Know About Credit Card Grace Periods
According to Section 163 (Timing of Payments) of the CARD Act of 2009:
“A creditor may not treat a payment on an open end consumer credit plan as late for any purpose, unless the creditor has adopted reasonable procedures designed to ensure that each periodic statement including the information required by section 127(b) is mailed or delivered to the consumer not later than 21 days before the payment due date.”
This means that you, as a credit card consumer, have at least 21 days for your payment to be received by the credit card issuer after your billing cycle closes and your bill is made available to you. So, for example, if your billing cycle closes on the last day of the month and is made available on that day by your credit card issuer, your payment due date cannot, by law, be sooner than the 21st of the following month. This doesn’t mean you can’t pay your bill sooner than the 21st; you certainly may. However, your credit card issuer cannot count your payment as late until at least 21 days have passed from when your bill was made available to you and they haven’t received at least the minimum amount due from you.
Many—but not all—credit card issuers offer their card members what’s known as a “grace period.” Having a grace period means that you will not be charged interest on an outstanding balance for purchases made with your credit card so long as you make your payment on time—as in it is received by the card issuer within the at-least-21-day window described above. However, there are two conditions that typically must also be met in order for a grace period to apply:
- You must pay the balance owed in full by the payment due date. So, for example, let’s say your credit card issuer offers a grace period and your balance at the end of your billing cycle is $300. If the card issuer receives a $300 payment from you by the payment due date, then you will not be charged interest on your purchases. If you make only a partial payment, however, then you will be charged interest. But, even if you pay the balance in full, to avoid interest charges Condition #2 must also typically be met:
- You must not have an outstanding balance at the beginning of your billing cycle. In the same scenario as above, if you already had an outstanding balance of $100 at the beginning of your billing cycle, and you then made another $200 in purchases to arrive at the balance of $300 at the end of the cycle, even if you pay the entire $300 by the payment due date, you will still be charged interest on your purchases. That’s because you did not pay your balance in full the previous billing cycle and it carried over into the next one.
In order to qualify for a grace period, you mus tpay your balance in full every time. If you don't, you'll be charged interest on your outstanding balance and any future purchases until you pay the entire balance owed in full. At that point, the grace period typically resets and, so long as you keep zeroing your balance each month, you shouldn't be charged interest going forward.
What having a grace period on your credit card essentially means is that you have the ability to make purchases with that card interest-free. So, you can take advantage of the convenience and other potential benefits of a credit card without having to pay interest on your purchases. So long as you keep getting your payments for the entire balance owed in on time each and every month, which is entirely up to you.
Having a grace period does not mean that a credit card is free. There may still be an annual fee and/or other fees associated with your particular credit card. But it does mean, so long as you get your payments for the full amount due in on time, every time, you can expect not to pay any interest for using that credit card—for purchases, anyway.
By the way, not all credit card transactions necessarily qualify for a grace period; it’s typically confined to purchases. For example, a cash advance made with a credit card may not have a grace period and may be subject to a higher interest rate and other fees a regular credit card purchase is not.
Also, if you do a balance transfer from one credit card to another, you may lose the grace period on the card to which you transferred the balance. That’s because, if you did the transfer to pay off the balance over time at a lower interest rate, you’re still paying it off over time—as in carrying a balance from one billing cycle to the next, which may negate the card’s grace period.
How Do You Know if Your Credit Card has a Grace Period?
Providing card members with a grace period is not required by law. You’ll know your credit card does not have a grace period if your card had a zero balance at the beginning of your billing cycle, you pay your card balance in full by the due date, and are still charged interest on your purchases.
But you don’t have to wait until that happens to know if your credit card offers a grace period. By law, credit card issuers are required to disclose the period purchases may be repaid without any finance charges being incurred in an easy-to-read, highly visible section of their cardholder agreement called a Schumer box. So, you should know whether a credit card offers a grace period before even applying.
Using a Grace Period to Your Advantage
By taking advantage of a credit card’s grace period, you can use a credit card to finance purchases short term without incurring any interest charges. How long that term is depends on when you make the charge. For example, if you make a $100 purchase on the first day of your billing cycle, you technically wouldn’t have to pay that purchase back for over 50 days (30 days of the billing cycle + 21 days until the payment is due) and still incur no interest charges, so long as you pay the entire balance due.
By using a credit card with a grace period strategically, you can spread purchases out and still get items you want or need interest-free. You just have to make sure you pay your balance in full each and every month.
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