Grace and mercy are close companions and are often mentioned in the same holy breath (Exodus 33:19, 34:6; Psalm 103:8; Isaiah 30:18; I Timothy 1:1).
How do they differ? Let us say that…
Grace pertains more to our state as sinners (condemned); mercy relates more to our condition as sinners (miserable).
Grace conveys unmerited favor; mercy bestows tender pity.
Mercy holds back the punishment until grace pays the price.
Grace is God giving us what we don’t deserve; mercy is God not giving us what we do deserve.
Mercy is more negative; grace is more positive.
Mercy pardons (I Timothy 1:13); grace justifies (Romans 3:24).
Mercy removes the guilt and penalty of sin (Proverbs 28:13); grace imputes righteousness (Romans 4:5).
Mercy saves from peril (Psalm 6:4); grace imparts a new nature (Ephesians 2:8-10).
Mercy rescues its object (Luke 10:33, 37); grace transforms him (Titus 2:11-12).
Mercy is more of an Old Testament concept (Micah 7:18-20); grace is more of a New Testament concept. (John 1:14-17).