Grace Period
Interest-free period (21-25 days) between purchase and payment due date. Only applies if you pay statement balance in full each month.
What You Need to Know
Grace period is the interest-free time between your purchase and payment due date—typically 21-25 days. During this period, no interest accrues on new purchases if you pay your full statement balance.
How it works:
- Make purchase on January 5
- Statement closes January 31 (includes January 5 purchase)
- Payment due February 25 (21-day grace period)
- Pay full statement balance = $0 interest on January 5 purchase
Grace period only applies when:
- You pay previous statement in full (carrying balance = no grace period)
- New purchases only (cash advances have no grace period)
- Card offers grace period (most do, but check terms)
Lose the grace period by carrying a balance. Once you carry a balance, new purchases start accruing interest immediately—even during the "grace period." Rebuilding grace period requires paying full statement balance for 1-2 cycles.
This is how credit cards can be free: pay full balance monthly, enjoy 21-25 days interest-free float, earn rewards.
Sources & References
This information is sourced from authoritative government and academic institutions:
- consumerfinance.gov
https://www.consumerfinance.gov/ask-cfpb/what-is-a-grace-period-for-a-credit-card-en-55/
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Related Terms in Debt & Credit
APR (Annual Percentage Rate)
The total yearly cost of borrowing money, including interest and fees, expressed as a percentage.
Amortization
The process of paying off a loan through regular payments that cover both principal and interest.
Annual Fee
Yearly charge for having a credit card—$0 to $550+. Premium cards charge fees but offer rewards that can exceed cost for high spenders.
BNPL (Buy Now, Pay Later)
A short-term financing option that lets you split purchases into installment payments (usually 4 payments over 6 weeks) with little or no interest—if you pay on time.
Balance Transfer
Moving credit card debt from one card to another, typically to take advantage of a lower interest rate or 0% promotional APR.
Balance Transfer Fee
One-time charge (3-5%) to transfer debt to 0% APR card. $5K balance = $150-250 fee. Must save more than fee to make transfer worthwhile.