What Is A Grace Period?
A grace period is a predetermined time following the due date during which an individual or a firm can make payment without penalty.
Mortgage loans and insurance contracts frequently contain a grace period, normally 15 days. A grace period allows a borrower or insurance client to postpone payment for a certain time after the due date. There are no late penalties during this time, and the delay cannot result in default or termination of the loan or contract. Payment made beyond the due date but during the grace period does not result in a black mark on the borrower’s credit record.
A grace period may be a lifeline for forgetful borrowers or those facing temporary financial troubles, but it is not an excuse to skip a payment. It is vital to properly review the terms of any contract in order to fully comprehend your responsibilities and payment options. Students on loan typically use the six-month grace period to find a job or enroll in another higher education program. Borrowers might start a professional before making loan installments.
However, it is critical to review the contract for information on the grace period. Some loan contracts charge no additional interest during the grace period, while the vast majority charge compound interest throughout the grace period. When calculating a grace period on a loan, it is critical to remember that credit cards do not have grace periods for their monthly minimum payments. Late fees are imposed immediately following the due date, and interest is added daily. A late payment made within the grace period has no negative impact on the borrower’s credit history.
Grace Period Example
If a consumer has a monthly mortgage payment due on the first of the month and the contract allows for a seven-day grace period, the payment can be received as late as the eighth of the month without penalty.« Back to Glossary Index