If you’re one of the millions of people who get a tax refund every year, you probably want it sooner rather than later. Depending on whether you file your taxes electronically or through the mail, it can take weeks or even months to get your refund.
That’s where tax refund advance loans come in. Tax prep companies will prepare and file your return and provide your tax refund amount as a loan that you can access almost instantly.
These companies use your tax refund as collateral, which lets you access those faster than if you had to wait for the IRS to process your return. But before you sign up for one of these services, be aware there are downsides to getting your refund early.
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What is a tax refund advance loan?
When you take out a loan, the lender usually wants some sort of collateral. In the case of a tax refund advance loan, the lender uses the promise of your future return as collateral.
Most companies have a limit on how much they will lend you, which also depends on the amount of your anticipated tax refund. For example, if you’re only supposed to receive $100, then you may not even be eligible for a tax refund advance loan. Most companies have a minimum amount that you must receive as a refund to qualify. Jackson Hewitt’s website states, “To be eligible for the $1,500 ETRA, your expected Federal refund, less authorized fees, must be at least $4,600, and most approved applicants get $300.”
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Terms and rates for tax refund advance loans vary widely. For example, Intuit TurboTax does not charge interest and can provide up to $4,000. They also claim that you can receive the money within a minute after the IRS accepts your return.
However, you will have to open a checking account with Credit Karma Money to receive your advance. Also, residents of Connecticut, Illinois or North Carolina aren’t eligible for this program.
What are the downsides?
Before you start applying for one of these loans, you should know how the fees and rules work.
For example, Jackson Hewitt charges a 35.96% APR financing fee on loans between $100 and $1,500. They also have a no fee loan option that comes with 0% APR. Unfortunately, the fine print says “NFTRA Loan amounts are determined by your expected Federal refund, less authorized fees and underwriting.” Another downside? You have to file your taxes with Jackson Hewitt to apply.
“Thus, I really doubt there is no cost involved — even if they offer no fee and no interest, there is always a catch or an upsell,” said tax expert Crystal Stranger, enrolled agent and CEO at Optic Tax Inc.
Learn about tax advance refund loans before applying
