Grace period
Also known as: Interest-free period, Payment grace period
The grace period is the window — at least 21 days under the CARD Act — between the statement closing date and the payment due date during which no interest accrues on new purchases, provided the prior statement balance was paid in full.
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The grace period is the conditional interest-free window that credit card issuers provide on purchase transactions. Under the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act), issuers that offer a grace period must provide at least 21 days from the date the billing statement is mailed or delivered to the payment due date. Most major US issuers offer 21 to 25 days. The grace period is not a feature of all credit products — it applies specifically to revolving credit card purchase transactions, not to cash advances, and is conditional on the cardholder paying the full statement balance by the due date.
The conditional nature of the grace period is the most consequential mechanic in credit card interest. When the full statement balance is paid by the due date, no interest accrues on any purchase from that billing cycle. When any balance is carried forward — even a single dollar — the grace period is lost, and all new purchases during the following billing cycle begin accruing interest from their transaction date rather than from the statement closing date. This means the cost of carrying a balance is not just the interest on the unpaid portion — it includes interest on all new purchases during the next cycle, which for active cardholders can be substantially larger than the carried balance itself.
Restoring the grace period after it has been lost requires two consecutive billing cycles of full-balance payment. The first payment clears the carried balance and any accrued interest. The second payment covers the cycle during which purchases accrued interest from transaction date because the grace period had not yet been restored. After both full payments are made, the grace period is reinstated for the third cycle onward. Cash advances and balance transfers typically do not receive a grace period under any circumstance — interest accrues from the transaction date regardless of payment history.
The effective length of the interest-free window on any individual purchase depends on when in the billing cycle the purchase occurs. A purchase on the first day of the cycle receives approximately 50-55 days of free float (the remainder of the billing cycle plus the 21-25 day grace period). A purchase on the last day of the cycle receives only the 21-25 day minimum. Strategic timing of large purchases to fall early in the billing cycle maximizes the interest-free period.
- Credit card grace period: when interest is charged (and not) Pay the statement balance in full by the due date and purchases owe no interest. Carry a balance and you lose the grace period — the CARD Act 21-day rule.
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- APR (Annual Percentage Rate) APR is the annualized cost of borrowing, expressed as a percentage, that includes both the nominal interest rate and certain mandatory fees. For credit cards, it is essentially the interest rate; for installment loans, it bundles in origination fees and points.
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