Definition
The grace period on a credit card is the period of time that a new transaction is free from incurring finance charges.
Analysis
The grace period on a credit card is usually expressed as a minimum number of days, such as 25 days. The actual grace period may vary depending on the date in which a transaction occurs and where it falls into the billing cycle.
A purchase that is recorded the day after the closing date on a credit card may have an actual grace period of nearly 2 months. Conversely, a transaction made on the closing date may need to be repaid within about 3 weeks in order to avoid finance charges.
A grace period allows the consumer a reasonable period of time in which to pay off the balance without incurring interest. If a balance is carried over from one month to the next, that balance will incur finance charges beginning from the due date.
If the cardholder makes any additional purchases when carrying over a balance, those purchases may not have a grace period and may incur interest beginning on the purchase date. Balance transfers and cash advances usually do not have a grace period.
