Missed your due date for your payment and are worried about the penalty charges?

Well, grace period, thank you!

What is Grace Period?

A grace period is a period of time after the due date of a payment or other obligation during which the borrower is not charged a late fee or penalty. This period typically begins the day after the due date and ends on the final day of the grace period. During this period, the borrower is not required to make the payment, but interest may still accrue.

It is usually included in loans and insurance.

How does a grace period work?

A grace period enables a borrower or insurance customer to make a delayed payment even after the due date has crossed. During this period no charges or penalties will be charged on the amount. 

This means there would be no negative impact even after a late bill payment.

But if the payment is not made before the end of this period, the lender may begin charging late fees or penalties for the overdue payment.

Example of Grace Period

Let’s take a look at this example:

Ravi has a mortgage with a due date of the 10th of every month and as per the agreement it has provided  7 day grace period.

This means that the customer can pay the amount as late as the 17th of the month without being charged with any penalties. 

This is an example of a grace period in the case of loans.

Ravi’s credit card payment due date was on the 12th of every month and let’s say he has a 15-day grace period. Ravi had missed the due date, so in that case, Ravi can make the payment by the 27th of that month without any penalty charges.

In the case of credit card repayment, credit card issuers provide a grace period beyond the due date during which any kind of penalty will not be charged.

Ravi’s insurance due date is on the 15th of the month and as per the agreement let’s say he has a grace period of 10 days. Therefore, Ravi can make the insurance payment by the 25th of the month without any penalty charges.

The insurance grace period enables protection of the policyholders from any loss of coverage especially when they delay the payment of premiums.

This is again dependent on the nature and type of Insurance.

Grace Period vs Deferment

Although Grace Period and Deferment might sound similar there lies certain differences between the two.

Let’s have a look.

Grace Period Deferment
Grace period is a time period beyond the due date till when a borrower is allowed to make payments. Deferment is a period of time when a borrower is not required to make any payments on a loan in case of a financial crisis.
It is provided by default to the borrowers and they do not have to apply for the same. Deferment is not automatic as borrowers have to apply and provide documents to prove that they are unable to make the payment.

Advantages of Grace Period

Let’s have a look at the advantages of the grace period:

1. Longer payment time

Since the borrowers can still make the payment beyond the due date without any penalty charges, this allows them a longer time period to make the payment. Hence this will also enable them to avoid bad debt. Any transaction that occurs during the period will be added to the bill for the next month.

2. No Interest

Any transaction that occurs during the grace period will not be subject to any interest charges and no penalty charges will be levied.

3. Avoid blacklisting

Making a payment within the grace period will not show a black mark on a borrower’s credit report. If the payment is made during the period, it will not be reported to the credit bureaus and therefore will not have an effect on the borrower’s credit score.

This period can be extremely helpful for borrowers who might have missed their due date or are currently facing a financial crisis. It is always advised to be aware of the terms and penalty structures provided by the service providers.

Today banking has significantly evolved.

The evolution of the fintech space has had a significant impact on businesses today.


Read more: What is Fintech? Meaning and Evolution

  •  RazorpayX allows business owners to open current accounts, pay taxes, schedule payments, pay vendors seamlessly and check invoices from a single dashboard. This saves valuable time and effort. 
  • It fills the gap between advanced banking solutions and finance professionals. It allows easy accounting software integration.
  • With RazorpayX Payroll, businesses can automate salary payments and provide insurance policies to their employees


Frequently Asked Questions

What Does Grace Period Mean?

A grace period is the period of time after payment is due, but before late fees, interest, or other penalties start to accrue.

What are the advantages of a grace period?

A grace period can be very helpful for a borrower. It can :
1. Allow longer payment time
2.Avoid Blacklisting
3.Avoid Interest charges during the grace period

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    Aratrica Chakraborty
    Author Aratrica Chakraborty

    Content Marketer. Travel&Scuba enthusiast.Makes the best Vegan Coffee.

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