While buying a credit card can prove to be really helpful for building your financial health, it can also be equally responsible for taking it down. However, the latter may happen only if credit card holders do not take their credits seriously. It is also vital to understand the basic terms related to your credit card and its bills.
This blog talks about one of the most important credit card terms- the interest free grace period. Let’s find out what it means and why it is so important to take it seriously!
What Interest-Free Grace Period Means?
The following points briefly explain what an interest-free grace period is-
- Grace period refers to the time frame between the date when your billing cycle and the date when your payment is due
- It is important to note that the grace period is interest-free only if you make your payments on time (before the due date)
- Generally, the grace period, as granted by the Indian banks, is of 20 to 60 days
- The grace period is also referred to as the ‘interest-free period’
- The grace period is beneficial for those who struggle to make their payments in time; however, it is only the last few days in which a credit card holder must settle his/her bills to avoid paying any additional interest
- Users who have unpaid balances from their previous billing cycle would not be the grace period on their credit card
- It must be noted that if a user withdraws money using his/her credit card, he/she will have to pay interest on the billed amount until the payment is fully cleared. In simple terms, the grace period is not granted to those who borrow cash advances on their credit card
- If credit card holders fail to pay their bills on or before the due date, interest will be applied on the entire amount (including any new purchases made)
Let’s take an example to understand the interest-free grace period better-
Suppose, Mr. A has a credit card bill of Rs. 5500. At the end of the billing cycle, Mr. A decides to clear his entire bill amount. Now, since the entire bill is paid off before the due date, no interest will be charged from Mr. A on any purchases that he makes in the next month.
However, Mr. B, who has a credit card bill of Rs. 9500, does not pay it in full. He decides to pay only Rs. 5500 out of his total bill amount. Now, since Mr. B has an unpaid balance of Rs. 4,000, he will have to pay interest on the pending bill right from the beginning of the billing cycle. On top of this, any purchases that Mr. B makes, during the next billing cycle will also be affected by the interest charges.
Hence, it is crucial to understand the importance of grace period if you don’t want to find yourself landed in debts.
Important Dates related to Grace Period
To be able to make interest-free payments on your credit card, you must be aware of the important dates related to the grace period. We have explained below all the important dates that you should know of-
- Statement Generation Date- This is the date when you receive your credit card bill. The bill that you receive on this date contains the details of your transactions, reward points, cashbacks (if any), your billing due date, etc.
- Due Date- This is the last date when you can make the payment of your credit card bill without having to pay any interest charges. This date is basically the last date of your billing cycle.
- Grace Days- Grace days are those which are offered to credit card holders by their providers as an additional time period to pay their bills after their due date has passed. This means that you have a chance to pay your credit card bill, free of interest even after the due date. However, if you fail to pay your bill even after the grace days have expired, you will be liable to pay a hefty amount of interest.
How to Manage Interest-Free Grace Period?
While being responsible and clearing your dues well in time is the only major key to avoiding interest payments on your billing amount, there are still a few things that you should consider to manage your interest-free grace period. Take a look at some of them below-
- Beware of all the important dates and make sure that you don’t miss out on any of those
- Try to make the entire payment of your credit card in full. This will eliminate any risk of being liable for late payments, additional fees or interest charges
- Note that even if you make partial payments of your bill before the due date, you will still not be able to make the most of your “interest-free grace period”. Interest will still be applied on the pending amount
- It is better to eliminate partial bill payment as an option from your mind
- Remember that interest-free period does not apply in cases of cash advances or revolving balances
While the amount of interest may not seem too much for a month or two, if you continue to accumulate it for the coming months, you would definitely end up suffering a substantial amount of loss over years. It is quite simple to keep away from paying any interest on your bill amount. All you need to do is remember the dates and make your payments well before time. Remember, being financially responsible is the key to having a healthy and stable financial health.