With most credit cards, you can get a free one-to-two-month loan on new purchases simply by paying your balance in full each month. But you can also forfeit your cards’ grace period by either by paying your bill late or by intermittently carrying a balance.
With most credit cards, you can get a free one-to-two-month loan on new purchases simply by paying your balance in full each month.
The free loan is courtesy of your credit card’s grace period, which allows you to briefly carry a balance until your next payment is due.
Grace periods are what allow power users to rack up card rewards and benefits for free. But according to the American Bankers Association, only around 31% of borrowers take advantage of their card’s grace period and avoid paying interest.
You can also forfeit your cards’ grace period by accident – either by paying your bill late or by intermittently carrying a balance. Here’s what you need to know about credit card grace periods and how to use them to your advantage.
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What is a grace period?
A credit card grace period is a period of time in which you can charge purchases to your card and wait to pay for them, without being charged interest. The period typically lasts at least 21 days and stretches from the end of one billing period until your next payment is due.
You can find out your card’s grace period – and whether it even offers one – by looking at the chart in your card’s terms and conditions. Underneath the APR disclosures, there will typically be a line that spells out how you can avoid paying interest.
If you don’t see a line touting how you can avoid paying interest, that’s a red flag. It could mean your credit card doesn’t offer a grace period. In that case, your purchases will begin accumulating interest on day one of each transaction, even if you pay off your balance in full by the due date.
Be sure to read the terms carefully. For some cards, you may find that only select cardholders are given a grace period.
Note: Only new purchases even get a grace period. Cash advances and balance transfers start accumulating interest as soon as they hit your account.
How does the grace period work?
But as long as you’ve been paying off your statement balances in full each month, your lender won’t charge you for any new purchases during the window of time that the grace period is still active.
So, for example, if you start a billing cycle with a $0 balance, you can buy an $800 couch and let it sit, without paying for it, until the balance for that cycle is due.
The catch: Grace periods are only guaranteed to last as long as you continue paying your monthly balances in full. If you only pay part of a balance one month (for example, by paying just the minimum amount due), your lender may cancel your grace period and any new purchases you make after that will start to immediately accrue interest.
Once you’ve lost your credit card grace period, you may need to wait a few cycles before it starts up again. Check with your card issuer for more details.
How long does a grace period last?
Lenders are required under the Credit CARD Act to set your due date at least 21 days after they’ve sent your last bill. So, if your credit card has a grace period, you’ll be given a minimum of three weeks from your last payment to carry a balance before you’re charged interest.
Many lenders offer even longer grace periods, giving you the ability to stretch your loan by a few more days.
Discover, for example, typically gives cardholders 25 days to carry an interest-free balance (23 days for billing periods that start in February). So do Bank of America, Wells Fargo, American Express and Capital One. Barclaycard and Citi give cardholders at least 23 days.
Depending on when you make a purchase, you may have even longer to hold onto your cash before you need to pay it off. That’s because of a quirk in the credit card billing cycle: a purchase you make one month may not actually be due until the next month’s statement.
How your billing cycle works
It’s common to refer to a billing period as a one-month cycle. But, with credit cards, the reality is a bit more complicated.
When you open your card, any purchases you make in that first billing period will be added to your statement balance and included in your bill. But once the billing period for that cycle closes (meaning the bill has been added up and is in the mail), any purchases you make after that will get added to the next month’s balance statement.
So, for example, if your card’s billing period ends on the 23rd of each month, any purchases you make on the 24th or 25th will get billed the next month. And thanks to your card’s grace period, you won’t actually have to pay for those purchases until three weeks later, when your bill is due.
See related: How do credit cards work?
Using your grace period to avoid paying interest
You can use your card’s grace period to your advantage to help briefly finance new purchases. It’s similar to asking someone for a loan and promising to pay them back in a couple of weeks. As long as you meet your promised deadline, you’ll only have to repay what you borrowed.
So if you have a planned expense coming up, such as plane tickets or a new appliance, you can strategically wait to make that purchase until after your billing cycle closes. That will give you as much time as possible to put off paying for your purchase, without incurring any interest. But remember: you’ll only get that perk if you continue paying off your balances in full.
See related: How does credit card APR work?