Purpose of a Grace Period

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    Customer Service

    • One purpose of a grace period is to improve customer relations, helping a business to satisfy its clients. Grace periods are optional since, by definition, they represent no penalty where one would otherwise be legal and enforceable. A business that offers a grace period may appear generous to its customers, including those who pay bills on time and never need to take advantage of the grace period. Fewer late fees means less call volume from customers seeking short extensions or asking why they must pay the fee.

    Simplicity

    • Businesses that offer grace periods can simplify their lending processes to save time and money. Each late fee requires notifying the customer, processing the charge and potentially dealing with a customer's complaint via phone or email. By simply ignoring minor and infrequent late payments, a business reduces the number of workers it needs to employ to follow up on late charges. Grace periods also remove doubt as to how to handle due dates that fall on weekends or holidays, making the process easier for new workers and customers.

    Saving Money

    • For customers, grace periods represent a decreased chance of incurring late payment penalties or overtime charges. For example, some car rental companies with grace periods allow customers to return their vehicles up to 29 minutes late without charging for an additional hour of rental. Since many companies don't offer any grace period, customers can choose a rental company with a grace period to avoid overtime charges due to heavy traffic or minor changes in the day's plans. Customers can also select loans that offer grace periods before charging late fees, giving them more time to submit payment during times of financial hardship.

    Time to Plan

    • Grace periods also give customers time to plan their budgets and prepare to make payments. For example, federal student loans offer grace periods that begin when students graduate or leave college and end several months later, which gives students time to find employment and establish themselves financially before they must begin making monthly loan payments. The grace period reduces the likelihood of missed payments in the first few months following graduation and allows students to more easily meet their debt obligations as agreed to once the grace period expires.

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