View Post

Credit Card Grace Period

Posted by Arnold on 01/29/14, 11:30

Credit card grace periods may seem like a confusing concept to most people. Just thinking about the words "grace period" seems like credit card companies are doing you a favor, like they are trying to save you money or give you more time to make that monthly payment. Although different credit cards and banks define grace periods in slightly different ways, the basic concept is pretty much the same.

A grace period is the window of time between when your billing statement is issued and your payment is due. If you pay off your entire balance during that window of time, the credit card company will not charge you interest on those purchases. If you make a partial payment on the balance, then interest will be charged going back to the original date of purchase based on the initial amount. A grace period is not a policy that you can invoke to get out of paying a late charge on your account; it is there to help save you on interest charged by the credit card company only.

As an example, say you make a $100 purchase and pay the minimum amount of $25 by your due date. When you get your next billing statement, you most likely will see an interest charge based on $100 instead of $75. Since the full amount was not paid during the grace period, interest is charged on the full purchase amount of $100. Now perhaps instead of paying the $25 in the first place, you actually paid the $100 off completely by your due date. On your next billing statement you should see that no interest charges have been charged to you, just as if you had been loaned the $100 from a friend for the month.

Federal law states that a minimum of 21 days must be given for credit card grace periods (see the Credit CARD Act of 2009), and that the definition of a grace period must be included in the credit company's terms and conditions (or whatever fine print they distribute to tell you how they run their business). The Credit CARD Act was enacted to help protect consumers from credit card companies conducting shady business practices that border on usury. Just like everything else a credit card company may tell you, the definition of a grace period may be obfuscated by legal jargon; however, you should be aware that all credit companies must have some sort of policy on a credit card grace period. Get to know what your credit card company can offer you in terms of grace periods, and you should be more informed as to how you can save yourself from paying unnecessary interest charges.

There are no comments to display.