Eli5: what happens if I buy something on a credit card, pay the balance to zero from a checking account, but then return the item and get refunded? Where does the money go?
In: Economics
Depends on your credit card company. They might keep it as a credit on your account and apply it to any future purchases, or they might send you a refund of the amount.
I got a check last week from Amex for $1.03 because I had a slight credit.
Since you paid with a credit card, it gets refunded to your credit card and you end up with a negative balance. With a negative balance you can either request a check or you can use the credit card until you get over a $0 balance
The money would be credited back to your credit card giving you a negative (ie the banks owes you money) balance. The vendor only has that card (unless you told them to send it elsewhere) so that is where they would send it.
Credit cards function effectively as a line of credit. The bank issuing the card agrees to pay the vendor when you use the card immediately and you get right with the bank later. You already paid the bank back for this loan in your scenario so the refund goes into the balance of the card but as a negative number (for the bank). I’m not sure what happens if you carry a negative balance into the next billing cycle, I imagine your card agreement has a section on that.
The balance is returned to the credit card, which becomes a negative balance on the account (a credit balance).
In my experience, many credit cards will, unless instructed otherwise, hold onto such a balance until further transaction activity uses it up, or if the account is dormant, eventually mail out a check for it
It will go back to the credit card giving you a debit balance.
The retailer has no idea what your bank account information is.
The credit card company might then issue you a check/debit your bank account if they have it, but you probably would have to request that.
The refund goes back to the credit card account and you would have a negative balance on that account. Typically that balance would just sit on the account until you place more charges on the card to cancel it out, but if the account sits in the negative for too long or you call the credit card company and request it, they will mail you a check for the balance amount.
Assuming the retailer sends the refund to the credit card you used to buy it, you will have a credit balance, essentially a “negative” balance, on your credit card. Your balance will be below zero
You can then ask for a refund of that credit from the credit card company and return the money to your checking account. Or, you could spend the money on your credit card and it’ll take your balance back up to zero
Back to the original method of payment, so in this case, your credit card – which would just give you a “credit” on your credit card for the amount of the refund.
Sometimes, you can ask for it to be refunded to your method of choice, but it’s rare, because it would go against typical “anti-money laundering” processes which have been widely used by businesses for decades.
You wind up with a negative balance on your credit card.
No, the credit card company doesn’t pay you interest on it.
They’ll offset that credit against other purchases or if you don’t use it, eventually send you a check.
You have a credit on your account which would reduce future bills. So rather than having a balance of, say, $200, you have a balance of -$20 (meaning $20 credit) so if you spent $150 then your balance due would only be $130.
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