A cure period is a time frame that is normally included in various types of contracts, including loans and mortgages. The purpose of this designated time frame is to allow the debtor an opportunity to catch up past due payments in the event that a default has occurred on the loan. Sometimes referred to as a repayment grace period, lenders will often extend this opportunity for a limited period of time before moving forward with taking steps to recover collateral or use legal means to settle the outstanding balance on a loan.
The use of a cure period is sometimes called a fix period, since the intended purpose is to provide one final opportunity for a debtor who is in default to make things right with the lender. During this period, the debtor is provided with specific number of calendar days to do whatever is necessary in order to prevent the default from progressing. For example, if the debtor is three months behind on the mortgage payment, the cure period may provide a 30-day period to catch up all payments that are in arrears, as well as make any payments that come due during that period. If the debtor is successful in catching up the back payments, then mortgage is once again considered current and the default is brought to a halt.
The same general approach is sometimes used in other lending situations. Assuming that the loan contract include provisions for a cure period, a debtor who is behind on car loan payments may also be granted a last opportunity to catch up the payments before the lender takes action. Typically, this will require tendering all the past due payments along with any interest or penalties that have accumulated. As long as the total amount due is in the hands of the lender by the final date of the cure period, the loan is once again current and the relationship can continue as before.
While the inclusion of a cure period is often viewed as being beneficial for the debtor, the lender also can gain some advantage from extending this type of grace period. When a debtor who is in arrears is able to catch up on payments during this cure period, the lender does not have to devote additional resources to declare the loan in default. The lender is also able to avoid spending money and time on legal fees to pursue payment of the debt, and does not have to go to the expense of seizing any collateral associated with the loan.
