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How Credit Card Refunds Work (And How To Get One Faster)April 21, 2020
Most of us have suffered from buyer’s remorse at some point in time.
The best way we can get rid of it is by returning the goods that we purchased.
Whether the items were purchased with cash or via a credit card, the merchant will issue a refund matching the purchase amount as long as the buyer abides by the return policy.
Why can’t you receive a cash refund for a purchase made with a credit card?
Let’s first understand what happens when you return an item purchased with a credit card.
The retailer issues a refund to your credit card account.
This transaction usually shows up in your account after a week.
Moreover, any rewards that you may have earned on this transaction, such as cash-back or points, are also reversed.
Many consumers are confused as to why they cannot claim a cash refund for an item that was purchased through a credit card.
The reason is simple – when you initiate a transaction through a credit card, the retailer is first paid by the credit card issuer.
Later, the credit card company bills you for the same amount, as can be seen on your credit card statement.
Now, whenever you return an item, the retailer returns the money to the place from where they received it – that is, the credit card issuer.
That is why, if you’ve made a purchase via credit card, you cannot expect a cash refund, as the money was originally paid to the retailer by the issuer, and not by you.
In most cases, retailers store transaction details and can pull up details of your credit card to issue the refund; but in some cases, you may have to provide the physical card for the process to take place.
Nevertheless, in case you no longer have the card with which the item was purchased, you can ask the retailer to issue you a gift card.
Tackling credit card returns
As mentioned above, once you return an item and the retailer refunds the amount, it can take several business days for the amount to be credited to your account.
Let’s say you purchased an item at the beginning of your billing cycle and returned it just a few days later.
If both the purchase and return are reflected in your account within the same cycle, you would not need to pay any amount towards the transaction.
Now, let’s assume that you made the purchase towards the end of a certain billing cycle, and the amount was refunded in the next billing cycle.
In that case, the purchase would be included in the first billing cycle – so, you should pay at least the minimum amount due, or else you will be charged a late fee by your issuer.
Having said that, many consumers wait months before returning an item.
Let’s say that you return an item that was purchased three billing cycles earlier.
In that case, when the retailer issues the refund:
- The credit card issuer will reduce your existing outstanding balance in the current billing cycle by the amount of the refund.
- If your outstanding balance is zero in the current billing cycle, then the refunded amount will be credited to your account, and you can use it later. In case the amount lies unused for several months, the card issuer will either issue a check for the purchase amount, or you can request one.
An interesting point to note is that if you made a purchase, carried the amount over to the next billing cycle, and paid interest on the balance carried forward, even if you return the item, you cannot expect the paid interest to be refunded.
As mentioned earlier, whenever you return an item, any points or rewards associated with that purchase are reversed, and that includes sign-up bonuses as well.
The reason why credit card issuers do this is to prevent consumers from gaming the system.
Otherwise, cardholders would buy items to rack up points, return the goods, and still enjoy the reward benefits.
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