Days of Grace means, days permitted by custom for payment of a promissory note, bill of exchange, etc, after it falls due. These are the additional days allowed to the drawee of a bill to meet his obligation on the same after the expiry of the due date of the bill. This term means, days, usually three, allowed by law or custom for payment after a bill or note falls due. Drawee is allowed three extra days after the due date of the bill for making payments. Such 3 days are known as ‘Days of Grace’. It is a custom to add the days of grace. A grace period is the amount of time allowed before a payable must be paid. A payment made within a grace period is not subject to any penalties or late fees by the seller. Borrowers can use a grace period to pay a late bill without a negative impact.
Days of grace, in the context of insurance, refer to the set period after the due date of a premium payment during which a policyholder can pay without facing a lapse in coverage. An insurance grace period is a defined amount of time after the premium is due in which a policyholder can make a premium payment without coverage lapsing. During this time, the policy remains in force, but the policyholder may still face a penalty charge for making a late payment. A grace period allows a borrower or insurance customer to delay payment for a short period of time beyond the due date. The insurance grace period can vary depending on the insurer and policy type. Depending on the insurance policy, the grace period can be as little as 24 hours or as long as 30 days. For example, if the bill is drawn on 1st January and its maturity is 1 month then the due date would be 1st January + 1 month + 3 days = 4th February.
Grace periods are useful for the collection staff, which does not engage in any collection activities during this period of time. It is a period of time beyond a due date during which a financial obligation may be met without penalty or cancellation. A grace period, typically of 15 days, is commonly included in mortgage loan and insurance contracts. Payment after the due date but during the grace period does not cause a black mark to be added to the borrower’s credit report. A penalty for late payment is added immediately after the due date and interest continues to be compounded daily.