Understanding the benefit of a good number of days of grace period is important, when choosing a credit card. Interest-free grace periods help you save a substantial amount every year.
Points to Remember:
Grace period is the timeframe between your bill cycle’s end to the payment due date. It is only interest-free if you pay your due payments on time. If you make your payment on time in full, consistently, sometimes the bank gives you a break on interest on your card for the present billing period.
Credit card companies are not required to provide a grace period, however most of the banks grant a grace period between 20 to 60 days in India. It is also referred to as the interest-free period. For those who struggle to make their payments on time, it may be tough to make payments in full and qualify for the grace period.
If you carry a balance from a previous billing cycle to the next, then there is no possibility for you to enjoy the leeway of grace period on your credit card.
However, grace period does not apply on the cash advances on your credit card issued by most banks in India. So, if you withdraw cash using your credit card, interest will be charged until the payment is fully cleared.
If, you as a cardholder do not pay your bill on or before the due date, interest is applied on your entire outstanding amount as well as the new purchases made using the credit card.
Let us try and understand interest-free period on your credit card with an example:
For instance, Seema is a credit card user. Being a first time credit card user, she makes a purchase of Rs.2200 on the first day of her billing cycle for the month. At the end of the billing cycle, she pays off her outstanding balance on the due date, clearing her balance. Therefore, she will not be charged any interest in her purchases in the next month. This is wise use of grace period.
What if, Seema left Rs.200 of her balance unpaid from the first month? The unpaid Rs.200 would start accruing an interest, right from the beginning of the billing cycle. The purchases made during the second months are also hit by interest charges. Although, it may not be a huge amount month-wise, but if Seema continues the pattern month-on-month, she could end up suffering a substantial amount of loss over a year.
Thereby, it is very important how you can save yourself from being charged interest during the grace period granted by the bank. Cardholders must remember that if credit card bill payment is not up to date and not paid in full, he or she cannot enjoy any grace period.