Lesson 2 of 25 · 7 min
Grace periods: when they exist and when they vanish
A grace period is a window that exists only if last month's statement was already paid in full.
A grace period on a card is a window during which new purchases do not accrue interest. The window is conditional. It applies to new purchases only if the previous statement was paid in full. Fail that test and the window is not there, including on the new purchases that arrived this cycle.
Wick & Pell Cards still shows $4,280 carried from the last statement. A 25-day grace period is printed on the agreement. Because $4,280 was not paid in full, there is no grace. New purchases of $190 accrue from day one. The $4,280 itself continues to accrue: over 31 days at the illustrative 21.99 percent from lesson 1, interest is still $79.94. The $190 is a second balance on the same daily clock, not a purchase sitting inside a free window.
Track 9 lesson 6 is a cure window that exists after a comparison has already failed, and that does not hold the shortfall still while it runs. A card grace period is the other direction of the same geometry: the window is granted only after a comparison has already been passed — last statement paid in full. It is not a substitute for that test. Carry a balance and the window vanishes for the new charges as well as for the old ones.
What the 25-day figure is doing, and what it is not doing, on this invented statement:
- It is a window for new purchases, and only if the previous statement was paid in full.
- It is not a window on a carried $4,280. That balance accrues from day one.
- It is not a window on this cycle's $190 of new purchases, because the prior test failed.
The grace period is a conditional clock. The condition is a prior payment-in-full. The printed 25 days do not create the window by themselves.
Key terms
- Grace period
- A window during which new purchases do not accrue, granted only if the previous statement was paid in full.
- Carried balance
- An amount left unpaid from a prior statement. Its presence is the failed test that removes the window.
- New purchases
- Charges posted this cycle. They inherit the grace period only if the prior statement cleared.
Worked example
A printed window that is not open
Wick & Pell Cards. Prior statement $4,280, not paid in full. New purchases $190. Illustrative 21.99 percent APR. 31-day cycle. Agreement prints a 25-day grace period.
- Prior-statement test
- Failed
- Grace on the $4,280
- None
- Interest on the $4,280
- $79.94
- Grace on the $190
- None
- What the 25 days describe
- A window that was not granted
$4,280 still standing.
A carried balance has no window.
$4,280 × 0.000602466 × 31.
The same failed test removes it.
The print is not the test.
The 25-day figure is a window that opens only after payment in full. On a carried $4,280 it is closed, including for the $190.
Check yourself
Tallow Yard Credit carries $3,150 from last month and posts $240 of new purchases. Illustrative 21.99 percent APR, 31-day cycle, 365-day year. The agreement prints a 25-day grace period. What interest accrues on the $3,150, and do the $240 sit inside the grace period?
A grace period is a cure window that exists only if a test was already passed — the everyday version of Track 9 lesson 6's window, which is granted after a comparison, not instead of one. Open The cure window, and whether it exists at all →
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Educational only. Nothing in this lesson is investment, legal or tax advice, or a recommendation to enter into any transaction. Figures are illustrative and computed from the inputs stated in the lesson.