Posted by Tiffany Gaskin

Tax Refund Loan: Is It Favorable?

Tax Refund Loan: Is It Favorable?

Lots of Americans qualify for a tax refund after filing their federal taxable income. For a typical individual, the average value is well over $2,500. Many taxpayers rely on this money for many things. 

As a result, there are times you might need the funds urgently. A tax refund loan can come in here, like other short term loans but it is usually based on your refund amount. 


What is a Tax Refund Loan?

Also known as a refund anticipation loan, such a loan is collected based on your federal income tax refund. You can access this service from many tax filing professionals. They will often offer you such service as an incentive for filing with them. 

Such loans only span a few weeks – long enough for Uncle Sam to forward your refund. Such a loan from a lender will have the value of any expected return alongside the charges or interest. The loan will be available on a credit card, prepaid card, check, or deposit to your account. 

Once Uncle Sam processes and forwards your refund, it will be directed to the lender, automatically repaying your loan. However, if your refund is smaller than the loan, paying the balance is inevitable.

 

Qualification for Tax Refund Loan

There is not much risk associated with refund loans. Hence, it is not tied to credit score, and the requirements are pretty straightforward. Qualification, most of the time, is a matter of what Uncle Sam will send you as a refund. 

Lenders will typically verify your identity and examine your tax history with uncle Sam and your debt. For pre-qualification, one might need to provide the Social Security number and the refund amount gotten in previous years. 


Tax Refund Loans: Argument for or Against it

If you need money urgently, tax loans can be a lifesaver. Your emergency fund might not cover the bill coming up, and waiting for your tax refund might be off the question. Typically, Uncle Sam sends refunds within 21 days of filing, which could take up to six weeks for a paper return. 

Early filers who claim the popular Earned Income tax Credit or the Additional Child Tax Credit are people who often receive the tax refund loans. Based on tax laws, Uncle Sam cannot deliver the refunds of those who claim such credit earlier.

However, a tax refund loan might not be the best choice for people looking for loans that last a couple of weeks. Also, if you think paying back the loan will be a problem, you are better off staying away. 


Task Refund Loans: Is it Worth it?

Surely, tax refund loans can be a lifesaver. However, the risk is the cost, making it essential that anyone interested understand all associated costs and its implication. For instance, there could be a penalty if you don't get your refund within a certain period. Also, you don't want your loan to go delinquent as the consequence is an interest and higher costs. 

Also, you might receive a lower refund than anticipated. If you borrowed more than you got from Uncle Sam, then you have to figure out how to repay the lender. 

There are times, as well, that Uncle Sam takes its time in processing tax refunds. There might be an error in your tax return, or Uncle Sam got his hands full. 


Tax Refund Loan Alternatives

The high costs of tax refund loans don't make them worth it. As a result, here is a couple of alternative for people:

  1. Wait for your refund: while this doesn’t seem ideal, it is a good option, especially if you e-filed your return

  2. Reduce Your tax refund: if your tax refund is enormous every year, you probably send more than necessary to Uncle Sam. 

  3. Look for a free refund advance.


FOR MORE INFORMATION ON HOW TIFFANY GASKIN CAN BEST HELP YOU WITH YOUR TAX FILING NEEDS, PLEASE CLICK THE BLUE TAB ON THIS PAGE.


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Tiffany Gaskin
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