How Credit Card Returns and Refunds Work?

Whenever you make a purchase using your credit card, your transaction gets approved by the credit card issuers. Similarly, if you want to return an item, your return request will get verified by your card issuer to initiate a refund. In credit cards, if you raise a return or refund request, you won’t be able to receive the amount in cash. You will receive a credit on your account that is equal to the purchased amount.

Overall, a credit card refund basically means raising a request to return an item purchased via your credit card. In such cases, you will get a refund as a credit on your credit card account.

It is important to understand how a credit card purchase works to understand the refund process. Whenever you make a purchase through your credit card, the credit card issuer is the one who pays for your purchase. Then, the amount gets deducted from the available credit limit after your card issuer approves the transaction. After this, you pay your credit card issuer back the amount and it gets added to your current credit limit.

Credit card networks are the companies that act as a layer between your credit card issuer and the merchants. The credit card network is responsible for processing your transactions. Similarly, when you initiate a refund request, the merchant sends your request to your card issuer before crediting the amount. Once your request gets approved by your card issuer, the merchant initiates your refund.

Suggested read: How Does a Credit Card Work?

How Do Refunds Work in Case of Credit Card EMIs?

When you purchase an item using a credit card and create EMI for it directly from the website, the refund procedure may be a bit complicated. Usually, it takes about a day for the card issuer/ NBFC to convert the transaction into an EMI. Considering this, there may be two scenarios:

• When you cancel the order before EMI is created by the card issuer
• When you send the return/ cancellation request after EMI is created on the card

In the first scenario, we have taken into account an immediate cancellation of the transaction under which the amount is immediately refunded back into your credit card account.

Whereas, in the second scenario, EMI and the amortization schedule have already been created and shared with you via email/ SMS. In this case, you will have to pay an extra charge for cancellation (foreclosure) of the EMI which is charged as a percentage of the total amount.

You may also choose to keep the EMI active which is to be paid every month. Since the transaction amount will be refunded by the merchant into your credit card account, the debit and credit will nullify it. However, you will still be paying a little extra in the form of interest on EMI and GST. No Cost EMI transactions do not attract charges in case of foreclosure/ cancellation.

Also read: Should You Convert Credit Card Purchases into EMIs?

How Do Refunds Work in Case of Foreign Currency Transactions?

When it comes to transactions in foreign currencies, the refund procedure is mostly the same. The processing may take longer. However, you will be stuck with the foreign transaction fee (1.99% – 3.5% of the transaction amount) as it is charged by the card issuer. In some cases, the card issuer/ NBFC may return the fee especially when the refund is initiated immediately and the currency values do not change in the meantime.

Suggested read: Best Credit Cards for International Use

Whether you can return the items or not depends on the store or the website from where you have purchased them. The refund processing time is affected by the selling company’s policies and also by the credit card issuers. Generally, most of the online stores take up to 7-10 business days for a refund to reflect in your account, whereas some may process it within 3 days or even immediately.

Given below is the credit card to credit card refund processing time for some popular e-commerce websites. They initiate the refund as soon as they receive the returned item but the processing time is shared keeping in view the usual time taken by the card-issuing bank or NBFC:

As mentioned above that the return request needs to be approved by your card issuer, therefore, it takes up to several days to process your refund. This is what takes place behind the scenes:

1. The merchant makes a return request through the payment gateway
2. The gateway shares this information with the acquiring bank (the bank in which the merchant has an account)
3. The acquiring bank communicates this to the issuing bank (the credit card issuer/ NBFC)
4. The issuing bank then accepts this request and processes the refund
5. After this, the amount is credited to your credit card account

Because information travels through multiple channels in case of a refund and each of these parties has its own processing mechanisms, it takes up to 7-10 business days for the amount to be credited into your credit card account.

Refunds are shown as credits in your credit card statement. An important point to note here is that if you initiate the return after your billing period ends and you have incurred certain charges and taxes on the transaction, the refund would not offset these charges.

Also, if your bill is generated before the refund is processed, the transaction amount will show as a debit and will be included in your outstanding amount. If the refund is credited before the due date of payment, you can deduct the refund amount from the total amount due and pay the remaining outstanding amount.

Let us understand this through an example:

Suppose you purchased an item worth Rs. 5,000, returned it and a refund has been initiated on September 5. Your statement date is September 7 and the refund does not reflect in your account, in the meantime, your bill is generated. The total amount due is Rs. 20,000. The due date for payment is September 25 and the refund initiated previously is credited on September 10. In this case, you can pay only Rs. 15,000 (after deducting the refunded amount).

Refunds, especially those of huge amounts, take a lot of patience on your part. You can stay on top of the updates by checking your account regularly. You can also call the credit card issuer to get regular updates.

Read in detail about Credit Card Statement

The most common question asked by our reader is what to do in case of a delayed refund if the statement has already been generated (including the previous purchase amount). There can be two scenarios under this:

Refund received after statement generation but before bill due date:

Let’s consider a purchase of Rs. 5,000 made on September 1 and you placed a refund request on September 3. Though the refund has been initiated, it has not been credited into your account until September 10. However, your credit card statement is already generated for the period on September 6 and it includes a debit of Rs. 5,000 (for which you already initiated the refund request).

Now, you have already received the refund amount on September 10 and considering your bill due date will be September 25. In this case, most of the card issuers would advise you to deduct the refund amount from your total outstanding and pay the rest. For example, if the bill was Rs. 20,000, you should only pay Rs. 15,000.

We suggest you must contact your credit card provider for a better understanding of the situation as the terms and conditions may vary from one card issuer to another.

Suggested read: Top Credit Cards in India

Refund delayed but bill paid in full:

In the above example, let us assume you paid the bill of Rs. 20,000 in full. In this case, the refund of Rs. 5,000 received will be shown as a credit in the next statement (as in the previous example) but it will be an extra credit as you already paid for this in your previous bill. So, Rs. 5,000 will be added to your current credit limit. This amount may be adjusted against your future purchases.

For example, you made a total purchase of Rs. 15,000 in the next billing cycle but your bill will be generated for only Rs. 10,000 as you had Rs. 5,000 extra in your credit card account.

Some card issuers may agree to refund the excess credit back to your bank account. However, this is subject to multiple terms and conditions. You must contact the customer support cell of your card issuer to get more clarity on credit balance refund. However, even if a refund is not possible, it will be added to your available credit limit and your future purchases can be adjusted against it.

Using credit cards definitely rewards you with a host of benefits, such as cashback, reward points and more. However, it is not as easy to get your money back as spending it with credit cards. Getting your money back with credit card purchases takes longer as compared to the debit card or cash transactions. This is because your return request needs to get approved by your card issuers in order to initiate a refund. This might also happen that you owe the money on the credit card balance while waiting for your refund to get processed. We hope that our article will help you to understand how credit card returns and refunds work.