Grace Period

 What does it mean?

The grace period is the additional time period provided after the due date during which pending payments can be made. After the grace period ends, a penalty may be applied on the defaulters. 

Contracts and loans can not be marked cancelled or result in default during the grace period despite the payment being late beyond the due date. Moreover, payments made during the grace period do not negatively impact the individual’s credit report. Loans, insurance and other agreements generally offer a built-in grace period. 

Points to remember:

• There are contracts which may add compounding interest during the grace period. Therefore, it is essential to be clear about the specifics of the grace period mentioned in the contract.
• Interest is charged on a new credit card purchase after a grace period of  21 days. This ensures that the borrower is not charged interest before the monthly payment is due on the purchase.   

Example: A home loan contract may provide a 15 day grace period. If the due date is the third of every month, the payment can be made until the 18th of the month without incurring any additional charges.