For the image source, click here
The reason for returning a purchase on a credit card can be any. But, do you know what happens to the refund amount thereafter? Who issues the credit card refund? When can you raise a claim to get your money back, and when you cannot do so? What is a chargeback? How does the refund process take place? And how much time it consumes for the money to reflect in your account? Does the refund affect your credit score and reward points? Know it all in the post below.
How Does a Credit Card Purchase Work?
You can claim a refund for the purchases you make on your credit card. It is either the credit card issuer or the credit card network, which provides the refund. But firstly, let us understand how credit card purchases work:
- The company that issues the credit card provides funds to make the purchases to the cardholder.
- The credit card networks are the companies that electronically process the transactions.
- So, they receive the money from the credit card issuer, and send it to the merchant, and vice-versa.
- So, it is the credit card issuer that sends the payment to the merchant and not you.
- Then the card provider adds the payment amount to your account balance.
- The payment you clear goes to the credit card provider.
What Are the Types of Credit Card Refunds?
Here are the types of credit card refunds, which usually happen:
- Merchant or Point of Sale Refunds: Sometimes, you may not receive the items you pay for. Or you are charged incorrectly. If this is so, the retailer will process the refund depending on the amount you have paid completely.
- Chargeback: If the retailer does not approve your claim for a refund, then you can raise a dispute with the credit card provider asking for a ‘chargeback’. Here, the bank will return the entire or part of the transaction amount. The refund of this nature is as per the rules set by the credit card issuer.
How to Request a Credit Card Refund?
The procedure for refund varies from a retailer to another. But here is the common process followed by most of the merchants:
- Let the merchant know you need a refund. You will have to provide a valid reason and submit the required proof.
- Submit the supportive documents and return the items (if required). If you have been charged incorrectly, then you have to also submit the credit card statement and the original receipt.
- A pro tip is to go for providers who give return protection on credit card purchases. Here, you get an extended period to exchange or return items. This period is over and above the return policy of the merchant.
What is the Process for Credit Card Refund?
When you return a purchase, the procedure explained above happens in the reverse. Here is how a credit card refund process works:
- The retailer issues a refund. The money goes to the credit card issuer initially.
- So, the merchant will not give you the refund directly in any form.
- Rather, after receiving the fund from the merchant, the card provider will credit the same to your account.
When Can You Request for a Credit Card Refund?
You can get a refund on receiving faulty items, returned items, charged for the same transaction more than once, fraud purchase by someone else using your card, and other such situations. But you may not receive a reversal of the purchase amount if you share the card details with other people, and then a fraudulent purchase takes place
It also is true if you do not report a stolen or lost card. Also, a refund is not possible if you do not meet the return policy guidelines. If there are any ‘pre-authorized’ charges, then the refund, here again, is questionable. A fine example is hotels holding off partial funds for a time as incidental charges. So, when you cancel the booking, you need to request the merchant’s funds rather than claim a refund.
How Much Time Does It take for a Credit Card Refund?
You must be wondering how much time it takes for the refund to reflect in your account. The period of refund depends on several factors. But do understand that the amount will not come to you instantly. Some of the factors that influence the reflection of the refund are:
- The retailer’s return policy and the time it takes to send the money back to the card issuer.
- Usually, the time taken for a refund by any retailer is 4-5 business days. But sometimes, it can take longer.
- So, you must always check for the return policy of the merchant before making a purchase.
- It can take more time for the amount to come to you if you have to mail back the items.
- The return also depends on the distance and shipping method. Sometimes it consumes several days before the package returns to the retailer, and then the refund to process.
If you want the credit card refund sooner, then you can pay a bit more for the expedited shipping. It can save time and is worth the expense. If you return the package in person, then you may not have to give authorization, which makes it quicker for the merchant to implement the refund procedure. But it will still take some time for the credit to reflect on your credit card statement.
How Does a Credit Card Billing Cycle Impact the Refund Status?
If you want the refund immediately, then request store credit. But the store credit will not eliminate the purchase amount from the billing statement. You will have to still pay the credit card provider the purchase amount for the product, even if you return it. The credit card billing cycle and credit card refund also share a link. Here is an example to illustrate the same:
- The closing date of your credit card is the 15th of the month.
- But you return an item and request a refund on the 20th of the month.
- So, the refund will not reflect on the statement for that month.
- The reason being, you returned the item after the closing date.
- There is thus a possibility that the current balance will differ from the statement balance.
- To know the exact account of the balance, keep a check on your account online from time to time.
What Happens to the Reward Points on Credit Card Refund?
Purchases on a credit card may earn you huge cashback, bonuses, and reward points. But can you still enjoy such perks on returned purchases? The answer is – maybe not. Because once the purchase amount is reversed, the associated benefits also disappear. But if you want to keep the points, then you may request the merchant for store credit. This will do away with the involvement of the credit card company for traction return. So, you can still keep the earned points safely.
Can a Credit Card Refund Influence Your Credit Score?
Money that reverses to your credit card account is not accounted as payment. But it is counted as credit. So, you still have to make the monthly payments despite the refunds. If you do not pay off the dues, then you have to pay late fees. This in turn harms your credit score. Do not hold off payments on your balance just because you are waiting for the refund to reflect in your billing statement.
Also remember, not paying the balance off after the statement arrives, and then returning the item later, will attract more interest on the purchases before the reversal amount shows up on the billing statement. So, if you purchase a costly product, and leave an unpaid balance, then the interest accrued on it can be too pricey. The refund you get will unfortunately not reimburse any interest you had to pay before returning the item.
- If you reduce the credit utilization ratio on the purchases, then your credit score will boost up. This ratio compared the total revolving credit amount you utilize to the total credit limit the provider has allotted for you.
- A low credit utilization ratio of up to 30% or less can improve your credit score. But a credit card refund can take some time to reflect in your account. And this can harm your score if the billing amount extends the credit utilization ratio.
- For instance, the credit limit offered to you is Rs. 2 lakhs. You make a purchase worth Rs. 1 lakh. But then you return the product and wait for a refund. So, until Rs. 1 lakh does not revert to your account, you have to use 50% of the credit limit available.
What is a Negative Balance after a Credit Card Refund?
The terminology – negative balance, may have wrong connotations. As they say, do not judge a book by its cover. A negative balance means that you do not owe any money to the credit card company. So, this is good news, and nothing to worry about. The negative balance then applies to your next purchase. Also, a negative balance has no problematic impact on your credit score.
The card provider does not report this balance to the credit bureaus. Also, it does not affect the payment history or reflect in your credit report. Rather, the use of negative balance in future purchases will lower your credit utilization ratio. This will increase your credit score. But if the amount of this balance is huge, it can take some time for it to reach your account.
The Credit Card Refund process is easy to understand if you are well aware of the merchant’s return policy, card provider’s norms about chargeback/amount reversals, and knowledge about the credit card billing cycle. There are certain pros and cons to receiving a refund. The above-given post will take you through exactly what you need to understand to experience a hassle-free refund procedure.