Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Grace Period

What it is:

A grace period is a period of time, usually about 10 days, during which a past due amount can be paid with little or no penalty.

How it works (Example):

Let's assume your credit card payment is due on December 15. You forget to make the payment. On December 20, you remember. By then, though, it's too late. Your bill is past due.

However, if your account has a grace period, you can make the payment and the creditor might not assess a late fee or other penalty.

Why it Matters:

Past-due bills often incur late fees, higher interest rates, penalties and other charges. Worst of all, the creditor might report the late payment to the credit reporting agencies, leaving a black mark on your credit rating (and even lowering your credit rating). In some cases, a bill get so past due (say, 90 or 180 days), that the creditor considers the account in default and may charge off the balance. A grace period gives customers a chance to catch up quickly before it's too late. After that point, the lender might assign or sell the account to a collection agency, which will try to collect the balance.