God's mercy is his withholding of punishment that we deserve for our sins. Mercy understands our neediness and comes from God's compassion, loving kindness, and forgiveness for the repentant. God's grace is his unearned and unconditional love shown through Jesus. It is the gift of salvation and eternal life through faith in Christ, not based on our own works but on God's riches in mercy. We should be merciful to others as God is merciful to us through his grace.