Posted by Fred Lake

Disadvantages and advantages of Tax Refund Advance 

Disadvantages and advantages of Tax Refund Advance 

A lot of people want their tax refunds to be in their palms as quickly as possible. Don't lose your patience while waiting for your tax refunds. There are available plans offered for everyone where you no longer need to wait for a long time before claiming your refund.

You can apply for a refund in advance. This is a better way to get money compared to a refund anticipation loan. Refund advance can let you borrow money with no applied charges and rates. But still, it will not exempt you from paying other fees such as a tax preparer’s service. They are the one who makes tax reports on your behalf. The cost of refund advances is consolidated to the tax preparation fees and for some time they will entice customers by selling other products and services so as to add another rate on top of the current total amount. Also, there are people who are exempted from paying fees or interest rates provided the IRS assessed and computed that you have a lower refund than what you have received but must first be consulted to the legal to firm if you are qualified for it. The lenders will not go after you for that since they consider it as an expense on their part. They acknowledge the fact that a lending business has a high risk.

Ideally, a person should pay the tax preparer beforehand to avoid incurring more fees and charges. 

A taxpayer whose usually in need of a refund does not have enough money and not capable of paying the tax preparer in advance. It is a very interesting way to gain income for most tax preparers. If you choose the method of payments such as debit cards, you will have to pay for the monthly fees and for credit cards you need to pay the annual fees and be charged with an interest rate. 

In the past, they used to offer a type of loan called a tax refund anticipation loans and some are still offering this but not quite often as before and this type of loan is a more expensive one, operated by a small finance company that acts as the third party. They are not directly aligned with the banks which means that they will be the one to lend you money and they are allowed to charge you rates or fees in their own terms. In addition, they will also add a processing fee that is around $30 to $50 for federal and state refunds. They will also add another fee for the mode of receiving the money either through debit cards or checks. The good thing about this is that you can have the money right away but the drawback could lead you in paying a higher interest rate. If you are in a rush and in need of cash right away then this will probably work. 

In the past, the requirement to apply for this refund anticipation loan is initially based on the IRS expectation. Part of the service is to put funds in the form of a paper check or direct deposit in your bank account. 

Once the IRS is done processing your return then it will be automatically delivered and issued to the lenders which means that you are done with your transaction with them.

However, in the year 2012, the regulators have discouraged the tax preparers to commend and promote this type of loan because it is really heavy in terms of finance on the part of the customers although it is a potential source of income for the tax preparation companies. The regulators believe that this will not benefit the customers especially to those who are badly in need. It's practical to some extent but is not ideal.

It is true that applying for a refund anticipating loan will allow you to have your money in a short period of time but there are also challenges that you need to put into consideration. Is it worth applying for? Because in the beginning, you still wouldn’t know how much your refund is. In case you received a lower amount of refunds compared to what you have borrowed then you are at risk. You are still obliged to pay for the excess amount. The lenders, on the other hand, is not much affected for they are aware from the start and they know what they are expecting as they are the one who managed your tax report. There are possible cases where the tax preparers have a discrepancy of computation between the IRS calculations the fact that IRS has the right to recognized or deny funds such as tax liens. So the customer is at risk because he has the tendency to pay more. In the end, computing the expenses you made, you will see how extremely high the amount you have spent. 

Fred Lake
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