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  Questions

How credit card grace period works


Most of cardholders are familiar with grace period on card, but unfortunately, many of us don't know how it really works.

Credit card grace period: what is it?
It is a window of time between when client receives his credit card bill and when his payment is due. It lasts 3 week usually, but some credit cards have a 4 week period before the payment is due. Paying balance in full by the due date runs a break on interest on another purchases during current billing cycle (it is necessary to pay it in full consistently). The grace period is also called an interest free period. Gap on interest covers the dates that purchases are made. Therefore, client may have from 3 weeks to almost 2 months before he has to pay. It's very popular because people like to buy now and pay later.

What is the shortest grace?
New law gives cardholders "a reasonable amount of time" for payments. According to the law, a minimum of 21 days should be given for grace (starts when billing statement is issued).

How does the grace period work?
Most cardholders assume that if they don't pay balance off in full, interest won't accrue until after grace period. Unluckily, it doesn't work like this

If the full amount won't paid off before grace period ends, then cardholder will pay interest going back to when he has made his purchases.

For example:
- Client purchases a $2,200 TV on August 22nd;
- Billing cycle closes on September 15th and the due date is October 7th. He pays $200 on October 3rd.
- On October 11th (4 days after the due date) he pays off the remaining $2,000.

A months later next statement comes. Instead of being charged for four days of interest on $2,000 he has been charged interest for forty-seven days on $2,000 (back to date of purchase). And the client has been charged interest on $200 that he paid before due date. But he thought he was just going to be charged for 4 days of interest on $2,000!

Do all credit cards offer grace period?
Unfortunately, not all credit cards have grace period. Only the best ones give clients chance to take advantage of grace period. You can find out if credit card has grace period by inspection rates and fees listed here.

Cash Advances Are Different
You need to know that grace period refers to purchase, not to cash advance. If cardholder gets a $2,000 cash advance, he'll pay interest on this amount as soon as it is posted to his account. This information is hidden in the fine print, so you should be aware of this.
Therefore, if you use your credit card responsibly, you'll be in good shape. And if you don't pay interest expense and use rewards credit card, you can even make profit from it.

How to use your grace period to shun paying interest?
If you use your credit card and do not know all the nuances of its grace period, you risk to get into debt. Applying a grace period correctly, the typical cardholder can save a couple hundred dollars a year. According to the research it's unclear whether clients understand the credit card grace period's tricky ways.
It is actually an interest free period (if the cardholder pays his/her balance by due date).
It is worth noting, that paying in full during grace period can't give the cardholder a break on convenience checks or cash advances. Remember that some balance transfers might also be skipped from grace period (it depends on the terms of the credit card).
If a due date falls on weekend, the deadline prolongs to the next working day. Paying more than the minimum is a good idea. It can reduce the interest costs. In the case when the budget allows to repay your monthly balance, it may increase your savings a little bit more.
According to financial consultants, with enough ready funds and with a little effort, cardholder can get the interest-free status in one month. Experts recommend not waiting for the statement to arrive. Check online the full balance at the end of the billing cycle and repay the debt via online bank transfer. It may suspend trailing interest charges. Cardholder needs to verify the next month's statement, otherwise, he/she can skip the few dollars of closing interest. If it is not paid by the due date it may lead to late fees and to a demerit on the credit.

2015.07.06 Olivia D.
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