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Credit cards

What is a grace period? How does it work?

With most credit cards, you can avoid paying interest on purchases if you pay your balance in full each month. The period between the end of a billing cycle and the date your payment is due is referred to as a “grace period.”  Card issuers that provide a grace period must establish procedures to assure that bills are mailed or delivered at least 21 days before they are due.

If you do not pay your balance in full, you will generally be charged interest on the unpaid portion of the balance, and interest will be charged on purchases in the new billing cycle starting on the date each purchase is made.

With credit cards, grace periods typically apply only to purchase transactions. If you use your card to get a cash advance or use a check you received from your card issuer, generally you will start paying interest as of the date of the transaction. Most card issuers also charge a different interest rate if you use your credit card to get cash or to write a check. Your statement generally must show the APR that applies to cash and cash-like transactions and the amount of the balance that falls in that category.  There may be more than one such APR, for example, one that applies to cash advances and a different APR for checks.

Your cardholder agreement must include the rules your card issuer applies to determine which transactions fall into which categories and must list the different interest rates. You should be able to find a copy of the agreement on your card issuer’s website and you can get a copy from your card issuer. If you have any questions, you should contact your card issuer.

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