A period of time a borrower is given after the due date to pay the loan before incurring a penalty. Most often, a grace period for an installment loan is about 15 days after the payment due date. Typically, no late fees will be charged during this period, and it does not result in cancellation or default of the loan. Paying outside of this time period may result in a fee of sorts, and the fee can be a flat fee or a percentage the borrower has to pay based on the loan payment amount.
For instance, if Harry works a full-time job as a waiter and makes regular monthly payments of $50 towards the installment loan he got to pay for books he needed for some online classes he is taking. However, one month he has to pay at a later date because he received fewer tips. The grace period on the loan would allow him some time between payments to pay the amount due without facing any extra charges. If he misses that grace period for his loan, his terms dictate that he pay a $10 penalty in addition to the amount he already owes on the loan.
Grace periods are automatically part of the loan terms unlike another similar term – deferment – which may require an application and approval on certain types of loans. A grace period allows consumers a little bit of extra time to make a payment should the need arise. However, to avoid worrying about whether or not your late payment falls within the grace period, it’s a good idea to make timely payments on or before the due date.