Under normal circumstances, you make your payments on time. However, there may be times when you forget a bill is due or you don’t have the funds immediately available to pay and you miss the due date.
However, this doesn’t mean late fees and other penalties are automatically added to your payment. Instead, the receiver could give you extra time shortly after the due date to pay the bill without any penalty. This period is called the grace period.
When Is a Grace Period Used?
A grace period is used in the form of payments for mortgage/rent and insurance. Some utility and sanitation companies also offer grace periods for bill payments. Additionally, thanks to the Credit Card Act of 2009, those companies cannot apply interest immediately after a purchase.
What Is the Average Grace Period?
Most companies offer a 15-day grace period to make a payment without penalties or activation of cancelation procedures. However, this isn’t across the board.
For example, you may only have a 10-day period to make a payment to an auto loan company. Utilities tend not to start shutdowns until 30 days after payment.
How Does It Work?
Should you make a payment during the scheduled grace period, your account remains unblemished. The company doesn’t apply late fees or add accrued interest. Furthermore, it doesn’t get reported to the credit bureaus as a late payment.
Before you sign a contract, it’s wise to review the grace periods offered by the company. Make sure they give you enough time to make a penalty-free payment if you're late or you don’t have the necessary funds. Also examine the consequences related to a payment made after the grace period.