Can I Get a Loan Against My Tax Refund?

FT Contributor  | 

Tax loans can be helpful if you need your tax refund money fast. After you file your taxes with the Internal Revenue Service (IRS), it can take the department up to 21 business days to deposit your tax refund into your account or send a check by mail. This timeframe can be even longer if there’s a mistake on your paperwork or the IRS is busier than usual.

If you’re counting on this money to help pay bills or other unexpected expenses, waiting for your refund to come can feel like an eternity. With a tax refund loan, you can obtain the refund money you’re expecting fast, sometimes within a few hours. Therefore, you can use this money right away to help with medical bills, a downpayment on a home, or to pay for an upcoming vacation.

A tax advance loan can be applied for through certain tax preparation services, but it’s typically backed and loaned by a financial institution. The application process is simple and you can get your refund advance quickly. However, it’s important to understand the loan terms you’re agreeing to before you request a tax refund advance loan.

Getting a Tax Advance Loan

A tax refund loan is often commonly referred to as a tax advance loan because you’re being provided with your tax refund in advance of it actually being issued to you by the IRS. It’s considered a secure loan for the lender because you’re required to use collateral to guarantee that you’ll pay back the loan. In this case, the collateral that’s being used is the tax refund money. Essentially, you’re promising that once your tax refund is issued, it’ll be provided directly back to the lender to satisfy your loan balance.

To apply for tax loans, you must find a tax preparation service that offers these loans. Many tax preparation companies also offer tax advance loans because these companies are tasked with helping you estimate your taxes. This step needs to be completed before your loan amount can be calculated. The loan itself is funded and backed by a bank or financial institution. Each tax preparation company has its own loan application process, but in most cases, you’ll be required to provide:

  • An estimated tax return for the year, outlining the refund you expect to receive.
  • Your government-issued identification.
  • Your bank account information for direct deposit of the loan amount.
  • A completed loan application.

If you’re approved for a tax advance loan, the tax preparation representative will review the loan terms, including the interest rate or fees associated with the loan. These terms may vary, depending on your financial situation and history, the lender’s terms, and the specific tax preparation company you’re working with. However, in all cases, you’ll be required to pay the tax loan back in full.

What Happens When I Get a Tax Advance Loan?

Once you file for a tax loan and agree to the terms, the tax preparation company will provide you with the loan amount. This usually occurs within hours of completing the loan application process and in most cases, the lender can deposit the loan amount directly into your bank account or provide you with a prepaid debit card that includes the loan amount.

When the IRS issues your tax refund, it is usually distributed to the same prepaid card or into your account. You satisfy your tax refund loan when you present this refund amount back to the lender. However, if the actual tax refund you received from the IRS is lower than expected and less than the loan amount and fees combined, you’ll owe an additional balance to the lender.

While a tax advance loan can help you pay for a big or unexpected expense before you get your tax return, it can also be associated with high fees or interest rates. Therefore, it’s not a viable long-term financial solution. Since you only file for a tax refund annually, you can only take advantage of this type of loan once a year. It’s important to find alternative long-term and less risky financial solutions, such as cutting down expenses, creating an emergency fund, or finding an additional source of income.

Should I Get a Tax Advance Loan?

If you need your tax refund as soon as possible for an emergency expense, a tax refund loan may feel like your only option. However, it’s important to understand the pros and cons of this short-term, high-cost loan before you sign a loan contract with a lender. In some cases, the lender may charge high processing or borrowing fees and interest for the time it takes to pay off the loan.

Some lenders may also charge a late payment penalty fee if you don’t provide your tax refund amount by a certain date. In many cases, the date you receive your tax refund is out of your control and depends solely on the IRS processing times. If the refund you receive isn’t as much as you were expecting, you’ll be responsible for paying the difference to the lender. If it takes you a period of time to come up with this extra payment, you may be required to pay additional late fees or interest.

In some cases, however, a tax refund advance loan can be the best option for your financial situation. If you feel confident about the tax refund amount you’ve estimated and the loan terms provided by the lender, a refund loan can be a viable way to get your tax refund money fast.


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