Many people are struggling to make their loan payments on time, so what happens if you are a bit late? A grace period by definition is a time frame in which a late payment on your loan can be made before bringing upon additional fees or penalties. If you keep missing your payments by just a few days, your lender may grant you this grace period. But, how does this exactly work, and what happens if you are still unable to pay after the grace period has passed?  

A grace period is a time between when your monthly installment is due and when the late payment fee will be applied to your account. This is typically between 21 and 25 days but can vary a bit depending on the lender.  

This grace period is also not the same for different loan types. Student and federal loans have longer periods. As a general rule, if you don’t make any payments during the grace period, your loans will go into default.   

Defaulting on your loans can have serious consequences. But besides that, it will also damage your credit, so future loan applications may be a lot more challenging for you.  

In case you have troubles there are still other methods to help you prevent default. Be sure to contact your lender to discuss your options.  

What Exactly Is a Grace Period?

The meaning of the grace period is to give you one last chance to make your payment before you get charged additional fees for being late. Depending on what kind of debt you are in, there is not always this period guaranteed by a lender. Having this as a sort of safety net is done so that in case you get your pay a bit late or you have some other unexpected expenses that needed to be covered, you can still make your monthly installment without suffering extra costs.  

How Does a Grace Period Work?

This period doesn’t always work the same. For example, for the student loan, it’s much longer and you have some time to find a job after graduating. After the grace period is over, you will then start paying your monthly loan installments. For some other loan types, like mortgage or auto loans, this period starts after you missed your payment and typically lasts for at least two weeks before the lender starts calculating other fees.

Grace Period vs. Deferment: What’s the Difference?

When it comes to repaying the loan you took out, there are two options to give you a bit more time for payments. The first option is to defer payment, which means that you can put off making payments for a certain period of time. Another option is to take advantage of a grace period.  

So, what’s the difference between a grace period and deferment? A grace period is a set amount of time you have for making your payments before other fees factor in as well. 

A deferment, on the other hand, is a temporary delay of loan payments. Unlike a grace period, you may be responsible for paying the interest that accrues during a deferment, depending on the type of loan you have. If you are in a tight financial spot and can’t afford monthly payments it’s generally better to defer the payment so you can get your finances in order first.  

Different Types of Grace Periods

There are a few different types of grace periods that you should be aware of. The most popular kinds are:  

  • Standard grace period. This is the most common type of grace period. It lasts for about 15 to 30 days after your payment due date. During this time, there will be no interest or additional fees charged to your account.   
  • Payment grace period. Some credit card companies offer this, which means that you will not be charged any interest on your balance if you pay it off in full each month. It is usually around three weeks.  

Depending on the loan type you took out, the grace periods will differ, so let’s cover some of the most frequent loans and their periods.  

Student Loan Grace Period

Most students don’t actually have to start repaying their federal student loans until after they leave school. After they graduate, there is an additional 6–9-month grace period which gives them time to get financially settled and used to the idea of loan repayment. The lender will contact you before your first payment is due and will help you choose the repayment option that’s best for you. There is also the flexibility of changing your repayment plan if your financial circumstances change.  

Mortgage Grace Period

If you miss a mortgage payment, your lender will typically give you a grace period of 15 days to pay it. This grace period is written into most mortgage agreements. Making your payment within that period will ensure you don’t get charged additional fees.  

If you cannot make your payment within this time, your lender may be willing to work with you and set up a new repayment plan. They may allow you to make smaller payments over a longer period of time until you get caught up with your mortgage.   

In case you have any troubles, don’t hesitate to contact your lender, because defaulting on this loan can have serious consequences.  

Auto Loan Grace Period

The grace period on auto loans varies a lot depending if you chose a dealership or some other lender, but most commonly ranges from 10 to about 30 days. Late fees can be significant on these loans so be sure you pay everything before this grace period ends. If you are having any troubles or going through a major financial crisis, contact your lender to set up a new payment plan for the future. 

Credit Card Grace Period

When you use a credit card, you are actually borrowing money from the credit card issuer. The issuer then charges you interest on the money you’ve borrowed, and this is how they make a profit. Most credit card providers offer some sort of grace period on new purchases. But, how long is a typical grace period on a credit card debt? Well, that depends on your bank, but most of them will give you a three-week period.  

If you don’t pay off your purchase within the grace period, you will be charged with interest, which is calculated from the date of your purchase. Interest rates here are quite high, so be cautious.  

It’s crucial to keep in mind that only new purchases are eligible for a grace period; if you make a cash advance or borrow money from your credit line, interest will start to accrue right away.  

Insurance Grace Period

A grace period on insurance is a specific length of time after you purchase a policy. During this time, you can cancel the policy for any reason and receive a full refund of your premium. After the grace period has passed, you can still cancel your policy, but only receive a refund of your premium if you specified the reason that is outlined in your policy.  

Most insurance policies have a grace period of 10 to 30 days. It’s important to check these terms so you know how long you have to cancel if you decide you don’t want the coverage.  

Be sure to wait for a confirmation from your insurance provider that the policy has been canceled and that you will receive a refund of your payment.  

What Happens After a Grace Period?

As we already thoroughly discussed, once this period has ended for you, the interest and additional fees will be charged on top of your loan.   

If you are struggling financially, it’s important to keep in mind that you can always just call your lender and ask them for a little modification on the repayment plan. They may be willing to offer you deferment or forbearance, which can temporarily lower or pause your payments. There are a lot of options so be sure to explore all of them before you make peace with defaulting on a loan.

Bottom Line

In conclusion, the grace period is a great way to avoid paying interest on your loan if you are just a few days late with your payment. With that being said, they are no way for avoiding the payments completely and cannot help you that much if you have bigger financial issues. Talking to your lender can always be a good idea to learn about different options that may suit your personal situation better. Don’t forget that the grace period on loans is not the same so be sure to always check what is written on your contract.   


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