Credit card billing cycles can be confusing. Whenever you make a purchase using your card, you have a set period of time to pay the money back. This time period, often known as a grace period, varies from lender to lender.
Sounds rather vague, right? But don’t worry, we are here to break down what a grace period is and how it works. We’ll also look at how it differs from the offer on a 0% new purchase credit card.
What exactly is a grace period?
A grace period on a credit card is the time period between the end of a billing cycle and when your next payment is due. During this time, you won’t be charged any interest on your purchases, as long as you have paid your previous and current bill in full and on time.
How does it work?
Credit card providers aren’t required to give you a grace period, but they often do. Grace periods are typically between 17 and 56 days, depending on when you make a purchase during your billing cycle.
Let’s break it down further. In order to avoid interest charges, any outstanding balance must be paid off on or before the due date.
So if your credit card bill covers the period from 1 July to 31 July – and you have 56 days interest free – your payment will be due on 25 August.
Therefore, if you pay back everything spent during July before 25 August, you won’t incur any interest charges on purchases made during that month.
Basically, a grace period is there to ensure that credit cardholders have time to receive their statement and make their payment in full.
But there are some things to be aware of:
- You don’t get 56 days interest free on every purchase. It’s more about the billing period. So if you pay for something on your card on 29 July, you would only have 27 days of your interest free grace period left until 25 August.
- Not all credit cards have a 56-day grace period. Take a look at your chosen card’s terms and conditions. Sometimes providers opt for a shorter time period.
- You can lose your grace period if you don’t pay the balance in full. If you don’t pay in full one month, then you will likely lose your grace period for that month and for the month after.
How is it different from 0% on purchases?
A grace period is not the same as a promotional interest-free period on purchases. When we talk about 0% purchase credit cards, we are talking about cards that offer an extended period in which you won’t incur interest charges on your purchases.
So for example, you could have a period of 15 months interest-free on your 0% purchases credit card. This means that as long as you clear your balance before your promotional period ends, you won’t incur any interest charges.
The 15-month period is not reliant on you paying off your balance in full each month, or anything to do with your billing cycle.
However, you still risk losing your promotional period if you fail to stay within your credit limit or pay at least your minimum repayment on time each month.
It is also worth remembering that when your 0% promotional period ends, your card will revert to its standard rate. So in order to avoid interest charges, it is best to pay off your balance before this point.
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