Is there a grace period before interest starts?

2 min read

From drawdownInterest usually starts there

Not from first paymentThe gap still costs

Grace = explicitMust be in writing

Check the agreementDon't assume

When interest starts

A common misunderstanding is that interest begins with the first payment. In most agreements it starts from drawdown — the moment the money lands in your account — because that is when you have the use of it. So the gap between drawdown and your first payment, often around a month, still accrues interest, which is why the first payment can be slightly larger.

What a genuine grace period means

A true grace or interest-free period — where no interest accrues for an initial stretch — exists on some products, but it is a specific, stated feature, not a default. If an agreement offers one, it will say so explicitly. Do not assume a delay before the first payment means an interest-free period; usually it just means the interest is accruing quietly and added to the first collection.

Checking your position

Read the agreement for exactly when interest starts and whether any grace applies. If you want to minimise early cost, drawing the funds only when you actually need them — rather than early 'to be safe' — avoids paying interest before the money is doing any work. On a daily-interest facility this timing matters most. See how the payment is worked out.

Confirm the interest-start date before drawing, and model the effect on the repayment calculator. To get an agreement to check, apply.

Frequently asked questions

Do I pay interest before my first repayment?

Usually yes — interest typically accrues from drawdown, when you receive the money, not from the first payment date. The gap before the first collection is not free; that interest is generally added to the first payment, making it slightly larger. A genuinely interest-free initial period only exists if the agreement explicitly states one, so check rather than assume.

Can I get an interest-free period on a business loan?

Some products offer one as a specific feature, but it is not standard and must be stated in the agreement. Do not confuse the normal gap before the first payment with an interest-free period — in most cases interest is accruing during that gap. If an interest-free stretch matters to you, ask lenders directly and get it in writing.