Grace period of credit. How to use it wisely?
Advertising persistently assures us that the holder of a bank card can receive money without interest for quite a considerable period of time, which can be a month or two or even more. For many, the suspicion creeps in that this is nothing more than an advertising stunt. However, serious banks such as fraud can significantly affect the image. There is no deception here. The conditions must only be carefully checked before a contract is concluded with a credit institution. So what’s below the attractive sentence: “grace period”?
Literally, this is the time limit; in the end, you can use borrowed funds without paying interest. In theory, everything is simple, but in practice, credit cards work differently with a loan term issued by different banks.
What should you look out for?
First, the concept of “grace period”. The credit usually applies to processes for paying for purchases with a card and not for withdrawing cash.
The second mistake that many make for card users is the assumption that you can use the money withdrawn from the card “for free” for the period indicated in the ad. In fact, this is not always the case. So if the grace period is 60 days, it doesn’t always mean that you can withdraw money from the card at any time to return it during that time and not pay any interest.
If we speak in more detail, the “interest-free” use of external funds consists of two stages:
- Billing (the time at which you can spend money from the card);
- Payment (starts after the settlement and is given to ensure that the debt is fully repaid).
These two segments add up to the promised 50, 60 or more days of interest-free money. With the second stage, everything is easy, it is a fixed number of days that the bank specifies, often equal to 20. However, the billing period can be set differently. If a new credit card is received, the grace period can begin if:
- Activation of the card;
- first payout of their money.
In the future, this period can also be determined in different ways and be the same:
- the number of days remaining until the end of the calendar month;
- A specified number of days from when the card was made (sometimes equal to the payment period).
In the first case, if the amount was deducted 1 day, then the grace period is 50 days (calendar month + 20 days of the payment period). However, if you perform a similar operation on the 15th day, the funds will be used (15 days before the end of the month + 20 days of the payment period = 35 days).
In the second case, and this is typical of a cheap plastic, the interest-free period can be up to 20 days.
What is the benefit for the bank?
It turns out: You can use the borrowed money free of charge for a certain period of time. Why do banks choose it? In fact, the grace period is a service that is beneficial to both parties. The user has the opportunity to make purchases on favorable terms (if he has time to repay the debt in good time). Well, the bank gets its relatively high percentage (over 20% a year) if the customer can’t pay off the debt at the end of the interest-free phase. Incidentally, if the amount of 30,000 dollars was withdrawn from the card and redeemed 25,000 before the grace period expired, the interest for using the money would not have to be paid from 5,000 dollars, but from the entire amount.
After carefully reviewing the terms and conditions for providing funds, you can dispose of them correctly.