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  • Credit Card Grace Period vs Moratorium

    The terms, ‘grace period’ and ‘moratorium’ are often used interchangeably. However, they do not have the same meaning. This article dives deep into the key elements of a grace period and a moratorium and how they are different.

    Grace Period

    A grace period usually falls between the time period from when your credit card billing cycle ends to the date on which the payment is due. The grace period is an interest-free time period. This allows you a few days to pay your bill before the lender starts to charge interest on the balance amount of your bill for the month.

    During the grace period, will not be charged any interest. Keep in mind that a grace period has not been mandated by law, however, lenders do give a time frame of 21 and 25 days. There is a law that if the lender offers a grace period, then they need to send you the bill at least 21 days before the due date.

    If you do pay the whole bill amount during the grace period, then the amount that has been borrowed will be called an interest-free loan, as there is no fee charged.

    If you have any balance amount on the credit card from the previous month, you will have to pay interest on this amount. The interest will also be applied on your future usage from the day of purchase.

    Example: If you pay Rs.2,000 on a credit card balance of Rs.10,000, the interest will be charged on Rs.8,000. If make a purchase for Rs.5,000, on the next day, the accrued interest on Rs.5,000 will also come into play. At times, it may take you around two billing cycles of full payments before you can enjoy the benefits of the grace period.

    Moratorium Period

    A moratorium period, is pretty similar to a deferment or a forbearance. This is when the lender allows you to not make payments for a set time period (for a specific reason, like financial hardship). The lender will give you a few months to gather enough funds instead of defaulting on your payments.

    The moratorium period helps in easing financial stress that you may be facing. This was seen being offered by many banks during the pandemic. This ensures that you have enough time to collect funds when you are going through liquidity issues. You can also divert your funds towards essentials instead of having to worry about repaying.

    Moratorium Period Vs Grace Period

    • The key feature that differentiates a moratorium period from a grace period is that a moratorium period is longer than a grace period. This is the reason why you will be charged interest during a moratorium period.
    • If the lender offers a grace period to you, it will apply to all customers who have a credit card. When it comes to a moratorium period, it applies to an individual, and not all borrowers or cardholders. The lender has to approve your application for a moratorium period.
    • During a grace period, you will have to make payment within the time frame. If you do not make the payment, then, you will be penalised and will have to pay a late fee. During a moratorium period, you do not have to make any payment.
    • A moratorium period can range from a few weeks to months. A grace period is generally up to 15 days.

    Moratorium and grace period are two very different facilities offered by lenders. When you borrow a loan, or apply for a credit card, you must have complete knowledge of the two terms and their concepts to avoid any penalty or impact on your credit score.

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