A credit card offers many benefits to cardholders in the form of reward points/cashback, travel benefits, dining benefits, and much more. Along with these benefits, the cardholders have the responsibility to pay back the facilities used on a credit card, and if these conditions are not met, one has to face heavy charges levied by the bank. Therefore, many card issuers offer many facilities and assistance to cardholders when paying off their credit card debt.
The Grace Period and the Moratorium Period are a few such facilities that a cardholder can use when paying off credit card debt. You must have come across these terms somewhere in your credit card journey and most people generally think of these terms as the same. However, they are not the same as they work differently, and are provided under different conditions.
Therefore, if you have confusion between the Grace period and the Moratorium period, then your doubts would be cleared with this article. We have covered every aspect of these two terms and in the end, you will be able to use these facilities more wisely in your credit card journey.
What are a Grace Period and a Moratorium Period?
Before moving ahead with picking out the differences between these two periods, it would be better to first understand the concept behind them. Let’s first start with the Grace Period:
A Grace Period is defined as a period starting from the credit card’s statement closing date and ending at the payment due date. During this period, the cardholders would not face any interest on their outstanding amount. Therefore, the grace period is also known as an interest-free period as the card user doesn’t face any finance charges on the due amount. As per the laws governing the usage of credit cards, banks or card issuers are not required to offer any grace period. However, if they do provide an interest-free period, then the card issuers must send the statement bill of the credit card at least 21 days before the due date. Banks generally provide a grace period of 21 to 30 days but may increase the tenure for some specific cards issued by them.
A cardholder is provided with a grace period so that he/she can settle their credit card debt before the due date without facing any financial charges. It is always advisable to pay the balance in full before the due date as it offers many benefits to the card user, such as a positive impact on credit score. However, if a cardholder is not able to settle the dues before the payment due date, then the card issuer will charge heavy interest charges and even a late payment fee if you don’t even pay the minimum amount.
Advantages of Grace Period
- A grace period credit card offers the opportunity to utilize the credit availed for free, as there are no interest charges applicable on the due amount during a grace period.
- The cardholder gets plenty of time to repay the credit utilized on a credit card.
- Paying in full during a grace period will help you to increase your credit score as settling in full is perceived as a good deed by the card issuers.
A Moratorium Period is defined as a period where the credit lender (card issuer) allows the cardholders to put a pause on the credit card bill payments. During this period, the cardholder is allowed to skip the credit card bill payments (even the minimum amount of payments) and this would not impact the credit score of the card user at all. However, the interest rates are still applicable on the due amount. The same will be charged in your next statement or when the period will end. the Moratorium period is not easily provided to every cardholder. The Bank may allow the same if one is facing high liquidity (financial) problems and has used the card wisely in the past.
The Moratorium Period is generally of a longer duration and may last for more than 2 or 3 months. However, as mentioned above, these are provided to the card users on a special request and there is no guarantee that the bank will provide the same. However, if the card user has been maintaining good relations with the bank and has had no payment issues in the past then there is a chance that the bank may approve the Moratorium period.
Advantages of Moratorium Period
- The Moratorium Period assists individuals if they are facing financial problems and are not able to cover their credit card bills.
- The credit score of the cardholder is not impacted in any way during a moratorium period despite not settling the monthly statement bills.
- During this period, the cardholder has plenty of time to save so that they can pay off their debts easily in the future and with better planning.
Quick Differences between a Grace Period and Moratorium Period
Both periods have similarities, both of them offer a substantial time to the card used to pay off their debts. Also, during these periods, you don’t have to make any bill payments to the bank. However, these are completely different concepts and have differences between them such as:
- The very first difference between a grace period and a moratorium period is that the grace period is provided to every cardholder and comes with the credit card from the beginning. However, a moratorium period is provided to a cardholder on a special request and not provided to everyone.
- Another difference between these two periods is that the card issuer does not charge any interest rates on the outstanding amount and the cardholder can make a payment before the due date. But in a moratorium period, the banks generally charge interest on the due amount and it keeps adding till you make the payment.
- Also, the grace periods are generally shorter than the moratorium period as they are of around 21 to 30 days. But the latter can be extended for more than 2 months.
Both the Grace as well as Moratorium periods offers cardholders the liberty to settle their credit card debt easily and conveniently. As the Grace Period is provided to all the cardholders along with their credit card, it is beneficial to utilize it properly. However, the Moratorium Period is provided very rarely and if allowed by the bank, the cardholder should use as minimum period as possible as the interest rates are still applicable on the due amount. Therefore, it is better to look for other options rather than going for a moratorium period which should be the last option in case of financial problems. If you still have any doubts related to any of these periods offered with a credit card, let us know in the comment section below.