Confused By Grace Periods

[justcallmebroke]

I admit it: I still don't fully understand how grace periods work. I have heard that some grace periods get forever eliminated after the first month you don't completely pay off a balance. So, then interest is charged every day of the month. Is this true?

[Admin]

Here's a great explanation of how grace periods work (from American Express):

What Is a Grace Period?

A grace period is the time you have before a credit card company starts charging you interest on your new purchases -- usually a period of 20 to 25 days.
But this "free ride" on finance charges does not work the same way on all credit cards. In fact, on most credit cards, you will be charged interest on your new purchases immediately -- unless you have paid off your credit card in full the previous month.


How Do Grace Periods Differ?



A card with a typical grace period...

• Has an average daily balance including new purchases as the balance calculation method. This means you pay interest on all new purchases immediately, unless you have paid your previous month's bill in full.

A card with a full grace period...

• Has an average daily balance excluding new purchases as the balance calculation method. New purchases are not included in figuring the amount of interest you owe for the current month. Unlike the typical grace period described above, you get the benefit of the grace period, whether or not you paid off your balance in full the previous month.

A card with no grace period...

• Has average daily balance including new purchases as the balance calculation method. However, with this card, you will always pay interest immediately on new purchases, whether or not you have paid your credit card bill in full the previous month.

[justcallmebroke]

Wow, that helps to clear things up a bit. Thanks, Steve.

[master01]

Most typical cards have a grace period that means you will pay nothing if you pay the bill each month in full. However, if you don't pay the whole bill then you will pay interest on your balance, including any new purchases that you make. This balance is calculated daily. If you pay your balance off most of the time but not always, then this sort of card will probably be fine for you.

When choosing a card, you should look at the card's grace period as well as its interest and fees. Although other factors such as interest are very important, getting a card with a grace period to match your spending habits will reduce how much the card will cost you in the long-term. If you already have credit cards but are unsure of their grace periods, then check with your card issuer. Knowing the grace periods you currently have could help you to save yourself money by reducing the interest that you pay.

[jonnyb]

Originally Posted by master01

Most typical cards have a grace period that means you will pay nothing if you pay the bill each month in full. However, if you don't pay the whole bill then you will pay interest on your balance, including any new purchases that you make. This balance is calculated daily. If you pay your balance off most of the time but not always, then this sort of card will probably be fine for you.

I think now-a-days all credit cards have a grace period!