Different ways that credit cards without grace periods cost you

When relating to credit cards, the grace period is the number of days between 1) the end of your credit card billing cycle and 2) your payment due date. During this timeframe, you are typically not charged interest. Luckily, most credit cards have a grace period of at 21 days. However, some credit cards do not have a grace period and you’re expected to pay your bill when you receive it.

How you’ll gain money with a credit card grace period

Let’s say that your credit card has no balance. You charge $2,000 to the card and plan on paying the entire balance a few days before the due date. 

Your billing cycle ends on March 1st and your payment due date is March 22nd.

If you’re paying your credit card with funds from your bank account, you can enjoy your $2,000 cash for 21 days before you commit it to your credit card company. For those 21 days, you could use it for a number of things, including making short-term investments or simply put it in savings account, where you’ll earn interest.

How you’ll lose money with no credit card grace period

Continuing with the above example, if your credit card doesn’t have a grace period, you will be charged at some point after the bill is generated. Interest will continue to accrue until the balance and all accrued interest is paid. So, when you get your credit card bill, you’ll be expected to pay the full $2,000 outstanding balance to avoid interest charges. If you’re being charged 10% interest, you would only pay almost $12 in interest for the month. But, this could get costly if you continue carrying a balance. If you have a much higher interest rate, carrying a balance on a credit card that offers no grace period can get even costlier. At 15% interest, you’d pay almost $18 in interest.

There are too many options to ultimately settle on a credit card with no grace period

You may think that you’re at the credit card issuer’s mercy because they’re lending you money. But, remember that you’re the prize. Credit card issuers court customers with credit card sign-up offers because they know how valuable you are to them as a customer. There are literally thousands of credit cards available to consumers. Most of these credit cards offer customers a grace period. So, there’s really no reason to settle on a credit card without a grace period when you’re selecting a credit card.