Grace Period

What Does it Mean?

Loans, insurance and other agreements generally offer a built-in grace period, which is the additional time provided after the due date to clear your pending payments. After this period ends, a penalty may be applied as per the terms and conditions. 

During the grace period, contracts and loans cannot be marked as cancelled or defaulted despite the payment being late beyond the due date. Moreover, payments made during this period don’t have a negative impact on the individual’s credit report. 

Points to Remember

There are contracts which may add compounding interest during the grace period. So, you need to thoroughly read and evaluate the terms and conditions. 

How a Grace Period Works

This period allows a borrower or a customer to pay the bill or EMIs even after the due date without additional charges or penalties. For example, a home loan contract has a 15-day grace period. So, if the due date is the 3rd of every month, you can make the payment until the 18th of the month without incurring any additional charges. The delayed payment will not cause any negative impact on the credit score. 

However, if you reach the end of the period and still haven’t paid the dues, then you may have to pay the penalties and it may also hurt your score.  

Example of Grace Period

Suppose you have to pay an EMI or your insurance premium by the 7th of February. However, your financial institution offers a grace period of 14 days. So, you can make the payment by the 21st of February. 

If you fail to pay it by then, the institution will levy a penalty or other consequence as per the terms and conditions (in case of loans) or your will lapse (in case of insurance) and you will lose the benefits accumulated. 

FAQs on the Grace Period

What is the grace period for a loan?

This period refers to the extension that the lender gives for you to pay the EMI. The period varies across lenders but is generally 90 days. 

How do loan grace periods work?

The grace period works similarly across financial products or services and allows you to pay the outstanding amount after the due date without any penalties. 

Can I pay my loans during the grace period?

Yes, you can pay your due amount within this period without any worries of a fine.