(GivenUs.com) – Filing taxes can be a bit of a headache, and once you’ve taken care of all the appropriate paperwork, you could still be left waiting weeks for your refund. If you need that money sooner, a tax refund loan could be an option for you, but it may not be the best choice for everyone. Here are some factors to consider if you’re thinking about utilizing a tax refund loan.
Tax Refund Loans Explained
A tax refund loan, or tax refund advance, is a short-term loan you receive while you wait for the Internal Revenue Service (IRS) to process your tax refund. These loans are relatively low risk for the companies that offer them since your taxes have been filed and the lender can see how much you’re expecting to receive. Once the IRS processes your request, the lender will claim the amount you owe on the loan, and the rest will be transferred to you.
The Advantages
The most obvious advantage of a tax refund loan is immediate cash while you wait for the IRS to process your return. If you’re in need of some quick cash flow, this can be an effective way to get it. Another advantage is that tax refund loans don’t affect your credit score.
Many tax preparation companies, including Jackson Hewitt, H&R Block and TurboTax, offer these types of loans in addition to tax preparation services. Some even offer a tax refund advance at a 0% interest rate depending on the loan amount, meaning you won’t pay more than the cost of tax preparation services for your tax refund loan.
The Disadvantages
As with any loan, it’s important to read the fine print and pay attention to hidden charges when considering a tax refund advance. Some lenders will only transfer the funds onto branded debit cards, which isn’t the same as getting the funds via check or directly in your bank account. This may not be an issue for some people, but it’s important to remember that debit card transaction fees and ATM withdrawal fees could eat into your funds.
While some lenders do offer 0% interest rate loans, the bigger the amount of the loan, the higher the likelihood it will come with an interest rate. For example, Jackson Hewitt offers loans ranging from $200 to $3,200 at 0% APR, but their maximum loan of $6,400 comes with a 2% interest rate.
Whether you should take advantage of a tax refund loan depends on your personal circumstances and your reasons for needing to borrow the money. The loan can be helpful if you’re in a pinch and need funds quickly, but if you have some savings to fall back on or can wait for the IRS to process your return, a tax refund loan may not make sense for you. Tax refund loans can be useful tools, but make sure to consider all factors and potential costs before signing up.
~Here’s to Your Success!
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