How do credit card refunds work?

Have you ever wondered how a credit card refund works? This handy guide takes you through everything from refund rules to how long a refund takes.

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Some people aren’t aware that they can get a refund for a credit card purchase if they’re not happy with it. But how does a refund on a credit card work? Here’s everything you need to know.

How does a credit card refund work?

If you use a credit card to make a purchase and you’re not happy with the result, you can get a refund. You simply have to send back the item and request a refund from the retailer.

Once you request a refund, the retailer doesn’t pay you directly. Instead, they pay your credit card provider, who then credits your account with the amount received from the retailer.

Any points or rewards earned from the purchase will be deducted once you receive your refund.

What are the credit card refund rules?

Here are some rules you need to know about when it comes to credit card refunds:

1. The refund must go to the credit card used for payment

A refund can only be made to the card you used to pay for the goods in the first place. It cannot be paid to another credit card or into a bank account. When a refund is made to a credit card with no outstanding balance, the account will end up with what is known as a negative balance. This just means that your account will be in credit.

2. You can only transfer credit amounts

If you owe money on your credit card, then a refund will reduce the outstanding balance. According to the credit card refund rules, you can only transfer the amount by which your account is in credit. So, if you owe £200 on your credit card and receive a refund of £800, you will end up with £600 in credit. The maximum amount you will be able to transfer is £600.

If you owe £1,000 on your credit card and you receive a refund of £200, the £200 will be deducted from the £1,000 you owe and you will end up owing £800 instead. You will not be able to transfer the refund amount.

3. The Consumer Rights Act protects all credit card purchases

The Consumer Rights Act protects you in the event that you purchase faulty goods. This includes the right to a full credit card refund within 30 days. After 30 days, you can get a repair or replacement.

Thanks to Section 75 of the Consumer Credit Act, your credit card provider is equally responsible for any breach of contract by the retailer for purchases worth between £100 and £30,000.

Applying for a refund through your credit card company is known as a chargeback.

4. Some PayPal transactions are not protected

For credit card transactions using PayPal, Section 75 protection applies if you are buying from a company that has a ‘Commercial Entity Agreement’ with PayPal.

PayPal transactions to companies without this agreement are not eligible for Section 75 protection. However, PayPal has its own buyer protection, so it’s worth checking their terms and conditions if you use PayPal regularly.

How long does a refund on a credit card take?

The time taken for the refund depends on the following:

  • The retailer’s return policy
  • Whether the purchase was online or via a retail store
  • How quickly the goods are returned to the retailer
  • Your credit card’s billing cycle

Generally, you should expect to wait around five to 10 days for the refund to appear on your credit card.

What does a refund look like on your credit card statement?

How a refund appears on your statement can vary depending on your credit card provider. Many credit card companies show a refund like any other credit to your account. It will be treated in the same way as a transaction that takes place when you pay your monthly credit card bill. The main difference is that the refund will come from a retailer.

If you have an outstanding balance, your card provider will reduce the outstanding balance by the refund amount.

What happens if a refund goes to a credit card with no balance?

Once the refund is complete, it will appear as a credit on your account. This is often called a negative balance, meaning that your card provider owes you money.

There are two ways you can deal with a negative balance:

  1. Leave the balance on your card and use it to make future purchases.
  2. Ask the credit card company to transfer the balance to your bank account.

What happens when a balance is transferred to a bank account?

This varies depending on the credit card provider, but generally:

  • Your card provider will not allow you to transfer the refund amount if your account is not in credit.
  • The balance must be transferred to a UK bank account.
  • The UK bank account will need to be one that you nominated when you set up your credit card account.
  • It will take around five to 10 working days to process the request.

Final refund tips

If you require a refund on your credit card, it’s best to deal with it sooner rather than later.

When dealing with a refund for a large amount, contact your credit card provider and arrange a transfer. It’s better that your card provider is not holding your money, since you could put it to good use.

If you’re considering a new credit card, check out our list of top-rated credit cards to find the best fit for you.