How Credit Card Refunds Work (2024)

A credit card issuer sets a credit limit for every cardholder. The credit limit acts essentially as a maximum loan amount. Whether the credit limit is $500 or $50,000, the cardholder typically can’t spend over their credit limit without paying down the balance. A balance is the amount of money owed to the credit card issuer by the end of a monthly billing cycle.

When a credit cardholder purchases an item from a retailer, the merchant requests money from the card issuer rather than from the cardholder directly. The card issuer pays the merchant the purchase amount electronically and adds the charge to the cardholder’s balance. The cardholder is then responsible for paying off the charged amount to the issuer. Making purchases with a credit card is useful for a few reasons: to earn points or rewards, to secure the ability to dispute charges and not be held financially responsible or to obtain added purchase protection when available, as per the card agreement.

Requesting a refund from the retailer for a returned item works the opposite way as the original purchase charge. The cardholder sends an item back to the merchant or returns it in person and the merchant pays the purchase amount back to the card issuer. Most retailers don’t allow a cash refund if the purchase was made with a credit card (this may be possible for debit card purchases, but not always).

Any purchase that earned points or rewards for the cardholder will have those earnings deducted from the rewards balance after the issuer credits the purchase to the cardholder’s account. If the cardholder uses an entire rewards balance before a refund is processed, then a negative rewards balance may exist in an account.

The time it takes for a refund to process depends on the policies of both the retailer and the card issuer as well as the cardholder’s return method. Returns made in person will typically be processed faster than an item shipped back to a seller. Some retailers like Amazon claim a refund will be credited to the cardholder’s account within three to five business days after the return is processed. However, the returned item isn’t processed until Amazon (or the seller) receives the item by mail. It’s always good form to read the retailer’s return policy on its website before anything is sent back to the store.

After a return is processed by the merchant, it may take the issuer seven to ten business days for the purchased amount to be credited back to the cardholder’s account. If shipping an item, expect one to two billing cycles before a credit shows up on an account.

While waiting for a credit card refund to be credited to an account, it’s important to continue paying the balance before the end of each billing cycle to avoid any interest fees. Cardholders are still responsible for the purchase’s addition to a balance until the refund is processed. Credit cards typically have high Annual Percentage Rates (APRs) that could lead the cardholder to pay much more for an item than originally intended. Avoid paying extra by paying off the balance each month.

Use a card issuer’s online portal to check the credit card account periodically for negative credit. Although “negative” has a bad connotation, in this case a negative balance is a good thing to find on an account statement—it means a reduction in the amount owed. A credit card refund will process as negative credit that is deducted from an existing unpaid balance. If the balance is zero, then the online account statement will show a negative balance.

Having a negative balance on a credit card account means a cardholder has extra credit that isn’t owed to the card issuer at that time. A negative balance may occur when a cardholder pays off an entire balance before a refund is processed. The negative balance will be applied to any future charges until it’s used up—effectively acting as prepaid balance.

If the cardholder has a large negative balance that is, for example, over $1,000, the cardholder has the right to request a refund by cheque, direct deposit or money order.

Using a credit card to make purchases (especially large ones) can be beneficial for earning rewards, added purchase protection and potentially disputing charges. Requesting a refund from a retailer should be a fairly simple process that may take up to two billing cycles to show on a credit card account. Although the process can take longer than expected, it should be relatively painless for the cardholder. Make sure to avoid making large purchases that can’t be paid off while waiting for a refund.