How Credit Card Refund Works, Time & Process

11 MAY, 2023

Credit cards are a convenient way to make purchases, and they offer many benefits, such as rewards, cashback, and fraud protection. However, sometimes you may need to return a purchase because it was defective or receive a refund for cancelled service. In such cases, it is your right to get a credit card refund. Many find credit card refunds confusing. Due to the same, it is necessary to understand how they work as it can help you navigate the process.

In this blog, we will learn how credit card refund works to help you understand the process better.

What is a Credit Card Refund?

A credit card refund is a transaction that returns money to your credit card account. It occurs when a merchant or service provider refunds a charge made to your credit card account. Credit card refunds can happen for several reasons, such as

Returned merchandise: If you return a product to the merchant, they may issue a refund for the purchase price.
Cancelled services: If you cancel a subscription or service, the provider may refund any fees paid in advance.
Overpayment: If you overpay your credit card balance, the issuer may refund the excess amount.
Fraudulent charges: If your card is used fraudulently, the issuer may refund the charges.

Many people have a common confusion between a credit card refund and a chargeback and use them interchangeably. However, these are different from one another.

When a retailer or service provider credits a customer's credit card account, this is known as a credit card refund. If a customer returns an item or cancels a service and the retailer or service provider agrees to reimburse the purchase price, then, this may occur. The money reimbursed is added to the customer's credit card account, which lowers the account balance.
A chargeback, on the other hand, is a procedure when a customer challenges a charge made to their credit card account. It could occur if the client did not get the good or service they ordered, or the transaction went wrong. In this scenario, the client contacts their credit card company to request a chargeback, which the company then looks into and may decide to reverse. The amount of the chargeback is credited.

How Long Does a Credit Card Refund Take?

The credit card refund time can vary, depending on the merchant or service provider. Credit card refunds usually take up to 7-10 business days to reflect on your account. However, some merchants or issuers may process refunds more quickly, while others may take longer. Due to the same, keep a track of the credit card refund to bank account and contact your issuer or merchant if it is not reflected in the said time frame.

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How is a Credit Card Refund Processed?

To understand the ‘how’ behind the credit card refund process, it is first important to understand the ‘how’ behind the transactions. When you pay your merchant or service provider using your credit card, the money is paid by your bank. When the transaction is processed successfully by your merchant, it adds up to the credit card bill you have to repay at a designated date when the credit card statement is generated. Due to the same, the credit is first sent to your bank before it is reflected in your account. That is why this process takes some days.

In case you receive a defective product or want to cancel a subscription, a credit is initiated to your credit card account when a merchant or service provider issues a refund. The refund amount is deducted from your outstanding balance, and your available credit is increased by the same amount. The refund may appear as a credit on your statement or as a separate transaction. Some issuers may also send you a notification or email when a refund is processed.

What Happens if You've Already Paid Your Credit Card Bill Before Receiving the Refund?

If you've already paid your credit card bill before receiving a refund, then the credit balance refund will be applied to your account balance. It means that your account balance will be reduced by the amount of the credit, and you may be eligible for a refund if the credit results in a negative balance.

What if You Close Your Credit Card Account?

If you close your credit card account before receiving a refund, the credit will be applied to your account balance, and you may be eligible for a refund if the credit results in a negative balance. However, you may need to contact the issuer to request the refund, as they may not issue it automatically.

What if You Dispute a Charge?

The issuer may investigate the dispute and issue a credit if they determine that the charge is fraudulent or incorrect when you dispute a charge. The credit will be applied to your account balance, and you may be eligible for a refund if the credit results in a negative balance. However, if the issuer determines the charge is valid, the credit will be reversed, and your account balance will be adjusted accordingly.

It's important to note that some merchants or service providers may have specific refund policies that dictate how refunds are processed. For example, some may only issue store credit or exchange instead of a cash or credit refund. It's always a good idea to review the refund policy before making a purchase to understand the options available to you in case of a return or cancellation.

Also Read: Top Reasons to Avoid Late Payments

Tips for Handling Credit Card Refunds

Keep receipts and documentation: It's important to keep all receipts and documentation related to your purchase, as they may be required for the refund process.
Check your account regularly: Make sure to check your credit card account regularly to ensure that the refund has been processed and applied correctly.
Contact the issuer or merchant: If you don't see the refund in your account within a reasonable time frame, contact the issuer or merchant to inquire about the status of the refund.
Understand the refund policy: Review the refund policy before making a purchase to understand the options available to you in case of a return or cancellation.

There is no doubt that credit cards are an amazing tool to make purchases as they come with a lot of rewards like cashback. Refunds on your items should be difficult even for items that were too expensive. The sooner you initiate a refund, the better for you. While getting a credit card, you should consider the refund policies as well.

With Kotak Mahindra Bank, you choose from a range of credit cards as per your needs. Apply for credit card soon and earn exciting rewards and cashback.