What Is a Tax Refund Advance Loan?

A tax refund loan is just that: a short-term loan against the income tax refund you receive before the IRS repays you. However, this is not necessarily a loan for the full amount of the refund. Usually, you only borrow part of the total refund.

These loans are also called immediate payments, emergency tax refund loans or only a tax refund advance or merely a refund advance. A similar loan called an advance loan was common before 2012 when regulatory changes led to its disappearance. 

With a refund advance, you borrow your money, which is then repaid when Uncle Sam issues the refund. Taxpayers pay refund advances because they offer cash access several times a day from the deposit and the next day to the IRS, which accepts the tax return. They can be particularly useful if you need money quickly.

Who can get a loan?

Eligibility for an advance loan is relatively straightforward. The creditor determines the rating. Some creditors perform a credit check on the borrower’s credit. The creditor examines the amount of the expected payment if he has previously qualified or the actual payment if the income declaration has been completed. The creditor also verifies your identity and applies the default signature criteria used for loans. Unlike most traditional loans, refund loans usually do not require a credit history.

How do Refund advances work?

In exchange for tax preparation, the tax preparation service lends you money through an external bank. Loan financing options vary among tax preparers and include a prepaid card, paper check, and direct deposit. Some may offer a refund transfer account, which is a bank account in your name.

If the total refund is higher than the loan amount in advance, when the IRS submits the total refund amount, the preparer will keep the loan amount and offer the difference on the prepaid card or as direct deposit. Most preparers will bear the cost of preparing taxes on the amount of the advance. Therefore, the amount you will receive will be the loan minus the fee of preparing tax returns.

Funds are generally available on a prepaid card within 24 hours of the deposit fee. For those who choose direct deposit, funds can take between one and five business days to be available on your account.

According to the IRS, 90% of returns made via an electronic file, called e-filing, are processed within three weeks. Paper returns sent by mail take between six and eight weeks. Of course, the earlier you submit, the faster you can get the refund. Therefore, an advance loan can generate money sooner or later. If you still want to use a refund service and make sure that your refund loan has an annual percentage rate (APR) of 0% and no commission, you can continue financially.

Advantages and disadvantages of Refund Advance loans

The search for refund advance loans reveals many different and often conflicting opinions. It is essential to know that these loans have changed in recent years. Historically, loans have had high-interest rates. Also, loans were made for what the taxpayer believed to be his payment. This has left some people with a loan above the refund amount and with no ready-made means to repay the loan.

With the new loans without 0% APR, the disadvantages of these loans have been largely eliminated. However, if you choose an option that includes interest or taxes, be prepared to give up money in exchange for access to certain funds sooner or later.

Advantages

• A refund advance loan gives you quick access to money. It may only be three weeks faster, but if you need the money now, you can get it.
• A deposit of 0% ARV guarantees that you will not pay anything other than the costs of preparing the loan.
• If you want or need the help of a tax preparer to prepare your tax returns, you can get the refund advance through the same process and know precisely how much refund you need to borrow.
• Using a tax preparer can help you guarantee the highest possible refund.
• Using an instructor can allow the user to use the reimbursement to pay the costs of preparing the declarations; there is, therefore, no need to make a separate payment.
• Obtaining a refund advance loan will not affect your credit score. Most companies that offer advance loans do not even check your credit score before making a loan.

Disadvantages

• A loan cannot be obtained for a full refund. A loan can be secured for part of the payment, usually a fixed amount. 
• The total reimbursement of income tax must be higher than the loan. 
• If profitability is complicated, the cost of using a tax preparer may be greater than the value of the loan. For example, if you qualify for a refund advance of $ 200 and the cost of preparing the tax return is $ 250, you will not get any of these loans.
• If your statement is simple, it is best to prepare it yourself, send the request for free and wait about three weeks to receive the money.
• You run a risk if you receive a loan for which the refund amount is calculated before the end of the return or only on a W-2 basis, since the actual payment may be lower than expected. This can result in interest payments at an annual rate of 35% or more. Do your homework and get a 0% APR in advance, for free.
• Some refund loans may require additional fees if the payment is late. Make sure you choose a loan provider who will no longer charge you if Uncle Sam is late in paying.

Baseline

A refund advance loan can be a great way to get cash quickly. However, do your homework and know what you are doing and what the conditions and consequences are before you commit to anyone during this financial season.