How Does a Credit Card Refund Work?

Almost all of us sometimes face the situation when we have to return an item that we purchased as it doesn’t meet our expectations or we need to cancel travel-related bookings due to some reason. For example, you see a beautiful dress online and order it using your credit card, but it turns out to be far different from what it looked like in the picture. Now, you will obviously want to return it, but before that, you must be aware of the process of credit card refunds. Some people expect that they’ll be refunded as soon as they return the product and get worried when they don’t see the reimbursed amount in their account. This article will help you understand how do credit card refunds work and everything you need to know about the same. Keep reading to know more:

How Long Does A Credit Card Refund Take?

Getting a refund for a purchase made via credit card might take a bit longer than that made via cash. The refund processing time can vary on the basis of different card issuers or different merchants. Some credit card companies take only up to three business days to refund your amount while others can take up to 7-10 business days. Moreover, the time is taken by the merchant to process the refund also matters here. When you request the return of an item, the merchant will process the refund and will ask your credit card issuer to credit the refund amount in your credit card account and then your card issuer & card network will proceed further to complete the refund. This is why a credit card refund takes time. It is highly advisable to check the refund policy of your merchant and the terms & conditions of your card issuer before returning your product.

Things You Must Know About a Credit Card Refund

1. Impact on Your Credit Score:

Returning an item that you purchased using your credit card doesn’t affect your credit score directly in any manner. However, if you are thinking that the refund will act as a minimum payment, your assumption is wrong, and doing this can hurt your credit score. If your payment due date is near and you are waiting for the refund to be completed, you might end up paying the late payment fee and having a decreased credit score. However, some of the card issuers even accept the refund as a minimum payment, but it’s really a rare case. So, it is good to pay your credit card bill on time even if an amount is going to be refunded to your account. When the refund is credited, it is added to your credit card balance and hence you can have a negative balance on your credit card. Having a negative balance on a credit card is not bad as it is in the case of debit cards. It just means that you have an amount greater than your credit limit to spend, which can be used in your next transaction.

Other than this, it can also impact your credit utilization ratio sometimes. For example, your credit limit is Rs. 50,000 and you purchased something worth Rs. 20,000 using your credit card, you have already used 40% of your credit limit. Now, if you want to return this item and purchase a new one worth the same, you must wait for the refund to be completed as your credit utilization ratio will be very high (80%) otherwise, which will affect your credit score badly.

2. What Happens To Your Reward Points

When you purchase something using your credit card or book a flight/hotel or train, you get rewarded in the form of reward points or cashback. But, when you return that item or cancel your booking, your reward points earned on that particular transaction will vanish as soon as the refund is completed. If you have already used these reward points, you might end up having negative reward points until you earn the same number of points. So, try not using the reward points earned on a transaction until its return/refund period is completed.

3. Refund in Case of International Transactions

When you cancel a transaction or return a purchase that was done in foreign currency, the refund process remains almost the same. You get refunded within a fixed time period as mentioned on the terms & conditions of your credit card, but what is different here is: the Foreign currency markup fee (generally 3.5% of the transaction amount) is generally not refunded. However, some card issuers refund this fee to you, especially when you cancel your transaction immediately and the refund is initiated before the currency values change.

What To Do in the case of Delayed Refunds?

Case 1 – When the Refund Amount is Credited After Statement Generation and Before Payment Due Date

When you request a refund many days before the statement generation date, but it gets delayed due to some reason and you receive it after statement generation (and before the payment due date) then you can subtract the refund amount from the total bill and pay the rest of the amount. For example, you request a refund of Rs. 3,000 on November 15, your statement generation date is November 24, and you receive the refund on November 25, and your payment due date is December 15. In such a case, the refund amount will not be mentioned in your statement, but your card issuer will most probably allow you to pay the bill amount after subtracting the refunded amount. So, if your total bill was Rs. 30,000, you will need to pay Rs. 27,000 only.

Case 2 – When The Refund is Receive After You Paid the Full Bill Amount

Now, consider the same example as taken in case 1. Suppose you paid the full billing amount of Rs. 30,000 and the refund is received after that, then the refund amount of Rs. 3,000 will be adjusted with your purchases made in the next billing cycle. If you spend a total of Rs. 15,000 with your credit card in the next cycle, then your bill will be of Rs. 12,000 as the refund amount will be subtracted from it.

Bottom Line

Purchasing an item and then returning it due to some reason is a common thing. But, doing the same with a credit card can be a long process sometimes and hence it becomes essential for you to check for the return/refund policy of your card issuer as well as the merchant. You must be aware of the whole process in order to get it done successfully. The most important thing here is to remember that the refund will not act as a credit card payment and you must pay your bill on time rather than waiting for the refund to be completed. If you still have any doubts regarding credit card refunds, you can freely ask in the comment section below.