A period of time during which a debtor is not required to make payments on a debt or will not be charged a fee. For example, most credit cards offer a grace period of 20 to 30 days before interest is charged on purchases; as long as you pay your bill in full within the grace period, you won't owe any interest. Similarly, many student loans offer a grace period for at least a few months after graduation, so new graduates don't have to start repaying their loans right away. A grace period is also typically included in mortgage and insurance contracts. During this period no late fees will be charged, and the delay will not result in default or cancellation of the loan or contract. In practice, the exact time will be noted in the contract if the loan or agreement has a grace period. The grace period was established by theCredit Card Accountability Responsibility and Disclosure Act of 2009, which was enacted to protect consumers’ rights. The act includesa provisionthat requires credit card issuers to give a grace period of at least 21 days for the borrower to repay the charge without incurring any interest charges on the purchase. Any contract with a grace period will also include an explanation of what will happen if no payment is made at the end of the grace period. Penalties may include late payment fees, punitive interest rate hikes, or cancellation of credit lines.
[Last updated in February of 2022 by the Wex Definitions Team]
