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A cure period is a period of time that is typically included in various types of contracts, including loans and mortgages. The purpose of this designated time period is to allow the borrower an opportunity to recover missed payments in the event of a loan default. Sometimes called a payment grace period, lenders often extend this opportunity for a limited period of time before proceeding with steps to repossess collateral or use legal means to pay off an outstanding loan balance.
The use of a cure period is sometimes called a fixed period, as the intended purpose is to provide a final opportunity for a delinquent debtor to work things out with the creditor. During this period, the debtor has a certain number of calendar days to do what is necessary to prevent the default from progressing. For example, if the debtor is three months behind on a mortgage payment, the recovery period may provide a 30-day period to recover all missed payments, as well as to make any payments that occur during that period. If the debtor is able to recover the arrears, the mortgage is considered current again and the default is stopped.
The same general approach is sometimes used in other loan situations. Assuming the loan agreement includes provisions for a recovery period, a borrower who is behind on car loan payments may also have one last chance to recover payments before the lender takes action. This will usually require the submission of all late payments, along with any interest or penalties that have accrued. As long as the full amount due is in the hands of the creditor at the end date of the cure period, the loan is back in force and the relationship can continue as before.
While the inclusion of a recovery period is often seen as beneficial to the debtor, the creditor may also gain some benefit from extending this type of grace period. When a debtor who is delinquent is able to recover payments during this healing period, the creditor does not need to expend additional resources to declare the loan delinquent. The lender can also avoid spending money and time on attorney fees to seek payment of the debt and need not be responsible for garnishing any collateral associated with the loan.