Tax refund loans are controversial. They can be helpful for some scenarios, but they also come with a cost.
Tax season can be challenging for many, especially when eagerly awaiting your tax refund. What if you could access your refund before it arrives?
A tax refund loan, a short-term financing solution, might be the answer you're looking for. But before you jump into refund loans, it's important to know all the ins and outs, including eligibility, costs, and potential risks.
In this article, we'll explore everything you need to know about tax refund loans so you can make an informed decision and navigate tax season successfully.
Key Takeaways
- Tax refund loans are short-term loans used to bridge the gap between filing taxes and receiving a refund, with loan amounts ranging from $250 to $4,000.
- Tax refund loans can incur high costs due to their high interest rates and associated fees.
- Alternatives such as online lenders, payday alternative loans (PALs), and loan apps should be carefully assessed before deciding on the best option for one's needs.
Understanding Tax Refund Loans
Tax refund loans are short-term loans provided by financial institutions or tax filing services designed to bridge the gap between filing your taxes and receiving your refund from the IRS. These loans are typically available between January and late February, with funds being disbursed through direct deposit, check, or a prepaid card, depending on the lender.
The loan amounts generally range from $250 to $4,000, and the cost of a tax refund loan includes interest rates and additional fees depending on the lender.
When you opt for a tax refund loan, you borrow against your upcoming tax refund. The loan is repaid through your subsequent IRS tax refund, and the tax preparation service you choose may affect the terms and fees associated with the loan.
Before deciding if a tax refund loan is the right option for you, you should clearly understand how they work and the costs involved.
WARNING About Refund Anticipation Loans
We DO NOT recommend using your tax refund for a cash advance or to fund any type of refund anticipation loan. As you will see below, they are expensive compared to other options available.
Furthermore, some unscrupulous tax preparers may charge higher fees than they are allowed to (or even hidden fees or interest). You need to do your due diligence!
If you're in a pinch and think this is the only way, be smart about your choices. Many people looking for a loan might be better served by one of the options on our best personal loans list.
Eligibility Criteria for Tax Refund Loans
Qualifying for a tax refund loan depends on various factors, including your anticipated refund amount, tax history, debt owed, and credit score.
Lenders assess these factors to determine your eligibility for a tax advance loan, and they may require personal information, such as your Social Security number, contact information, and the refund amount received for the preceding tax year, for confirmation.
The minimum refund amount required to qualify for a tax refund loan varies depending on the lender. Some lenders require a minimum federal tax refund of $600, while others may provide loans starting at $200.
Consulting with specific lenders about their minimum refund amount requirements and other eligibility criteria can increase your chances of qualifying for a tax refund loan.
Can You Get A Refund Anticipation Loan With Bad Credit?
Good question and the answer is: it depends. There are some companies who claim to give anticipation loans without a credit check (like Jackson Hewitt, for example) others will require credit checks and some may charge higher fees if you have bad credit.
If you’re planning on getting an anticipation loan, your best bet is to simply call and ask the tax prep service provider you plan on going to about the details beforehand.
You can also opt to try for a personal loan. Check out Credible here:
The Costs of Tax Refund Loans
Although tax refund loans may appear a convenient way to get your refund early, it's vital to consider the associated costs. These loans can be expensive due to high-interest rates, application fees, and additional charges depending on the loan method.
However, some popular tax filing services offer more advantageous options with refund advances. We should delve into the costs associated with tax refund loans.
High-Interest Rates
High-interest rates can make tax refund loans quite expensive. With Annual Percentage Rates (APRs) ranging from 0% to over 34%, the cost of borrowing can add up quickly.
The average interest rate for tax refund loans across different providers can vary significantly, ranging from 67% to 774% APR, depending on the provider and the specific loan terms.
However, some popular tax filing services, such as H&R Block and TurboTax, offer refund advances with no interest, making them a potentially more attractive option for those needing quick access to their refund through a bank account.
Jackson Hewitt, another popular tax filing service, offers a refund advance with an APR of 34.22%.
Application Fees
Application fees for tax refund loans can add to the overall tax refund loan cost. Generally, the application fee for a tax refund loan is approximately $100. Lenders charge this fee to cover administrative costs and mitigate the risk of providing loans based on anticipated tax refunds.
Remember that not all lenders impose an application fee for tax refund loans, and the fee amount can vary greatly. Some companies may charge a non-refundable application fee, while others offer a refund. To avoid surprises, it's essential to thoroughly review the terms and conditions of the loan before applying to determine if the application fee is refundable.
Additional Charges
In addition to interest rates and application fees, there may be other charges associated with tax refund loans, such as:
- Tax preparation fees
- Check-processing fees
- Bank fees
- Software or technology fees
- Interest charges
These additional costs can increase the overall expense of a tax refund loan, making it essential to carefully review the terms and conditions of the loan before applying.
Comparing different lenders and their respective fees is a strategy to minimize the costs associated with tax refund loans. Some tax filing services, such as H&R Block and TurboTax, offer refund advances with more favorable terms and lower fees, making them a potentially better option for those in need of quick access to their refund.
Popular Tax Filing Services Offering Refund Loans
Popular tax filing services offer refund loans, including H&R Block, TurboTax, and Jackson Hewitt. Each service has its own loan products and eligibility criteria, providing various options for those seeking a tax refund loan.
We'll examine the refund loan offerings these popular tax preparation services provide.
1. TurboTax Refund Advance
TurboTax Refund Advance can give you up to $4,000 in less than a day! They estimate that most loans will be closed within 1-2 hours of IRS acceptance of the tax return. Even better, you can get the advance with $0 loan fees and 0% APR.
The refund advance is available in in amounts of:
Tax Refund Amount | Max Refund Advance |
|---|---|
$500 - $999 | $250 |
$1,000 - $1,499 | $500 |
$1,500 - $1,999 | $750 |
$2,000 - $2,999 | $1,000 |
$3,000 - $3,999 | $1,500 |
$4,000 - $4,999 | $2,000 |
$5,000 - $5,999 | $2,500 |
$6,000 - $6,999 | $3,000 |
$7,000 - $7,999 | $3,500 |
$8,000+ | $4,000 |
Your loan will be funded to your Credit Karma Money™ Spend account, typically within 1 - 2 hours after the IRS acceptance of your e-filed federal return and you may access your funds online through a virtual card. Your physical Credit Karma Visa Debit Card* should arrive in 7 - 14 days.
Read our full TurboTax Review here.
2. H&R Block Emerald Advance
H&R Block Emerald Advance – H&R Block seems to have departed from traditional refund anticipation loans and now offers the Emerald Advance starting as early as November each year.
The Emerald Advance is a line of credit of up to $1,000 issued before the Christmas season and that must be paid back by February 15th the following year. As long as the loan is paid back by Feb. 15 then loan holders may be eligible to keep their line of credit for the entire year.
It’s important to note that the H&R Block Emerald Advance is much riskier than a traditional anticipation loan as it is a line of credit with interest and NOT a one-time loan secured by your tax refund. However, you can use your tax refund to pay down your line of credit to $0 each year.
Here’s what else you need to know about the Emerald Advance:
- $45 annual fee for opening the account
- 35.9% APR <<<This is HIGH
- Minimum Monthly Payment of $25 or 4% of Your Balance (Whichever is greater.)
- $7.50 Late Payment Fee
- $20 Returned Payment Fee
3. Jackson Hewitt
Jackson Hewitt is offering up to $4,500 with an early tax refund loan, starting December 13 online, and at select locations through February 19. All you need is a paystub or proof of income and you could qualify for up to $700 at participating locations.
They actually offer two products. Up to $1,000 before the holidays (starting December 13), which has a 6% fee, up to $60. They offer a $3,500 no-fee refund advance loan when you file your tax return (starting January 2).
You can borrow the max of $4,500 combined as long as you have a tax refund due of at least $4,600 after fees.
To find out, see if you can prequalify now. 0% APR Loan by MetaBank®. Terms Apply. Then head to a participating location starting December 13, with your paystub or other income verification.
4. Liberty Tax
Liberty Tax – Liberty Tax offers holiday tax refund loans in the amount of $200 - $500 for tax payers who qualify. Right now, you must have used Liberty Tax previously to qualify. These loans are secured by your tax refund are available in the form of a check printed in the office, prepaid MasterCard or direct deposit.
Check out our full Liberty Tax Review here.
Pros and Cons of Tax Refund Loans
There are pros and cons to consider when deciding whether a tax refund loan is right for you. On the positive side, tax refund loans provide quick access to funds, allowing you to address immediate financial needs without waiting for your refund.
These loans also have high approval rates and do not usually require a hard credit check, making them accessible to individuals with less-than-ideal credit.
However, there are also downsides to tax refund loans. The costs associated with these loans can be significant, including tax filing fees, mandatory accounts, and deductions from IRS refunds.
Additionally, if the actual refund amount is lower than anticipated or there are delays in receiving your refund, you may incur penalties and additional expenses.
Weighing the pros and cons and considering alternative options is crucial before deciding on a tax refund loan. This may include looking into lower-cost loan alternatives or implementing a budget plan to manage your finances without relying on a tax refund loan.
Read our full list of pros and cons for tax refund loans here.
Tax Refund Loan Alternatives
If you're considering a tax refund loan but are concerned about the costs and potential risks, alternatives may better suit your needs. Online lenders offer fast funding and personal loans with minimum amounts ranging from $1,000 to $2,000.
Before borrowing from an online lender, it's important to know the potential risks of obtaining a personal loan.
Another alternative to tax refund loans is payday alternative loans (PALs), offered by credit unions as a lower-cost option than traditional payday loans. Loan apps allow individuals to borrow money based on their income and creditworthiness and also provide fast access to cash without waiting for a tax refund.
These apps can be accessed throughout the year, giving individuals a convenient borrowing option whenever needed.
Assessing your financial situation and needs is vital before deciding on either a tax refund loan or an alternative. Assess the costs and risks of each option and choose the one that best aligns with your financial goals.
How to Apply for a Tax Refund Loan
To apply for a tax refund loan, you'll need to:
- Apply with a tax preparer, who will work with a bank to lend the funds.
- The qualification process depends on your credit profile and the expected refund amount.
- Popular tax filing services like H&R Block, TurboTax, and Jackson Hewitt offer tax refund loans with specific application procedures and eligibility requirements.
Upon submitting your application, the time frame for receiving your tax refund loan can vary depending on the lender and the filing method, ranging from a few minutes to a few weeks. Understanding the application process and the potential waiting period is crucial to ensure a tax refund loan aligns with your financial needs and timeline.
Potential Risks and Pitfalls of Tax Refund Loans
While tax refund loans can provide quick access to funds, there are potential risks and pitfalls to consider.
For example, if your IRS refund does not arrive on its due date, you may incur penalties for delays, such as the failure-to-file penalty, which can reach up to 25% of the tax owed per month. Additionally, delinquency in paying back the loan can lead to extra interest charges.
Another potential risk is receiving a lower refund than expected, which can occur if your refund is denied, delayed, or if the actual refund amount is lower than anticipated.
Before deciding to apply for a tax refund loan, these potential risks and pitfalls should be considered, and a backup plan should be in place in case your refund is lower than expected or delayed.
Tips for Navigating Tax Season Successfully
To navigate tax season successfully, consider implementing the following tips. First, file your taxes early to avoid processing delays and get your refund quicker, as well as to decrease stress and safeguard your identity. This will also give you more time to collect necessary tax documents and ensure accuracy in your return.
Another tip is to claim all the eligible tax credits during tax season, as this can reduce the amount of income tax owed and potentially increase your tax refund. By taking advantage of all the tax credits for which you are eligible, you can lower your overall tax bill and put more money back in your pocket.
Finally, consider alternatives to tax refund loans if needed. This may include:
- Lower rate loans
- Loan apps
- Payday alternative loans
- Fast funding from online lenders
By exploring all your options and choosing the one that best suits your financial needs and goals, you can ensure a successful tax season and maximize your tax refund.
Alternatives To Refund Anticipation Loans
Have you ever thought about simply getting a personal loan? I know this might sound a bit weird, but you might get more money, a better interest, and an all around better deal.
A personal loan can be a great way to pay off high interest credit card debt, consolidate multiple loans, get your car or house fixed, and more. The helpful feature about these loans is that you have a set payback period - versus having to do your taxes and then waiting for the return.
We recommend shopping for a personal loan on Credible. Credible is a comparison site, where you can see what different options you might qualify for online - in just 2 minutes. You can borrow anywhere from $1,000 to $50,000, with APRs as low as 5.40% (with autopay). That's a great deal (especially when you look at something like Emerald Advance).
Check out Credible and see if it makes sense for you here.
What Can You Do To Speed Up Your Tax Refund?
If you insist on getting a tax refund anticipation loan, please perform your due diligence. Go for the fee free loans of up to $1,300 and by all means stay away from the lines of credit and all other loans that charge fees and hefty interest.
If for some reason you can’t get a free anticipation loan, you’re much better off simply waiting for your tax refund to come in. If you want to speed up that tax refund here’s what you should do:
File Early – You can file your taxes as early as Jan. 1st although we estimate that the IRS won’t start accepting returns until Jan. 23, 2023. You can use a tax prep service or file online through one of these places.
Don't Forget About The Delay For EITC and ACTC - If you are filing with the Earned Income Tax Credit or Additional Child Tax Credit, your return will automatically be held until February 15 to be processed, so you likely won't even get your return until late February or early March.
Have All of Your Information Together – Before you file make sure you have everything that you need. Impatience could cause an error on your part and delay your tax refund. Here’s a list of items you’ll need to file.
File Electronically – Filing electronically is much quicker than filing a paper return and should result in a faster refund. Remember, if you file by mail, you have to mail in your return (takes about a week), and the IRS has to manually put it into the system (adds about 3-4 weeks). Filing by mail typically adds 12 weeks to your original 21 days if you e-file.
Use Direct Deposit – Using direct deposit is the quickest way to receive your tax refund. If you opt for a check, you're only adding time to get your refund. The IRS has to send your information to the check printers, and then they mail it to you. That process adds at least a week to your refund. Check out these bank accounts that allow for early tax refund deposits.
Tax refunds are typically given received within 21 days of your tax return being accepted which means you could receive your refund via direct deposit as early as February 20. Although due to a new tax law you might not see your refund until a few weeks after that date.
If at all possible, wait for your tax refund to come in from the IRS. If you absolutely need to your refund early, opt for a fee-free loan and stay away from the lines of credit.
Summary
In conclusion, tax refund loans can provide a convenient solution for those needing quick access to their refund during tax season. However, it's essential to consider the costs, eligibility criteria, and potential risks associated with these loans before deciding.
By understanding the ins and outs of tax refund loans, exploring popular tax filing services offering refund loans, and considering alternative options, you can make an informed decision and navigate tax season successfully.
Remember, the key to a successful tax season is being prepared, informed, and proactive in managing your finances.
Frequently Asked Questions
Can I get a loan on my tax refund now?
You can get a loan on your tax refund through refund anticipation loans or Refund advances. These products are generally for a set amount, offered between December and late February, and typically require that you have your taxes prepared by the company offering the loan.
How does a tax refund anticipation loan work?
A tax refund anticipation loan (RAL) is a short-term loan issued by a non-bank lender and secured by the borrower's anticipated tax refund. Taxpayers usually receive the loan amount right away, minus fees and interest, and they must repay the loan if their refund is smaller than expected.
What are the costs associated with tax refund loans?
Tax refund loans come with costly charges, such as high interest rates, application fees of up to $100, and extra costs depending on the loan method.
Are there any alternatives to tax refund loans?
There are several alternatives to tax refund loans, such as lower-rate loans, loan apps, payday alternative loans, and online loans from lenders offering fast funding.
Robert Farrington is America’s Millennial Money Expert® and America’s Student Loan Debt Expert™, and the founder of The College Investor, a personal finance site dedicated to helping millennials escape student loan debt to start investing and building wealth for the future. You can learn more about him on the About Page or on his personal site RobertFarrington.com.
He regularly writes about investing, student loan debt, and general personal finance topics geared toward anyone wanting to earn more, get out of debt, and start building wealth for the future.
He has been quoted in major publications, including the New York Times, Wall Street Journal, Washington Post, ABC, NBC, Today, and more. He is also a regular contributor to Forbes.
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