Last Updated: March 17, 2023
Is waiting for a tax return stopping you from managing your money the way you see fit?
If you answered yes, loans against tax refund are just the thing for you.
Also known as a refund anticipation loan (RAL), this financial option allows taxpayers to receive tax returns at their disposal quickly.
We explain the way these loans work, and also where and how you can get one. We’ve also pointed out the pros and cons to help you decide whether it’s the right solution for you, as well as a few alternatives to help you choose the option that suits you best.
Let’s back up and explain everything from the beginning.
What Is a Loan Against Tax Refund?
Simply put, this is a loan that uses your anticipated federal income tax refund as collateral.
Refund anticipation loans are usually provided by tax preparation companies in collaboration with third parties, such as banks. Depending on the lender, the requirements, costs, and loan amounts can vary.
These loans can have a 0% interest rate, but they can also have different fees as well, so always make sure to thoroughly read and fully understand the terms and conditions of your specific loan.
Loans against income tax refund are short-term loans that you must repay when you get your tax refund from the IRS.
Here is how it works:
The loan may be deposited into your account or on a prepaid card shortly after the approval. After the IRS issues your refund from federal income taxes, the amount borrowed together with fees and interests is deducted from your account.
Loan amounts vary depending on the lender, the amount of tax refund you’re expecting, the tax preparation company, and your overall credit and financial health.
Pros & Cons of Getting a Loan Against Tax Refund
This loan may be a good option if you need the money and don’t want to wait for the IRS refund.
Some more advantages of a refund anticipation loan include:
Some companies deposit a loan as fast as 24 hours after approval; this means that you’re usually just a few hours away from funds. That sure beats the IRS when it comes to speed.
Paying off Debts With Higher Interest Rates
You can use a refund anticipation loan to pay bills or debts that have higher interest charges, which means avoiding them accruing while you’re waiting for your tax return.
On the other hand, loans against your tax refund do have a few setbacks:
They Might Cost You
Depending on the company providing you the loan, you may not be required to pay any fees or interest, but that’s not always the case.
Sometimes these types of loans have application fees and different interest rates.
The Tax Preparation Fees
Even though some companies offer these loans without an additional cost, you will be required to leave your tax preparation in their hands if you’re applying for a RAL through them.
Depending on loan companies that give loans against a tax refund and the complexity of your tax returns, these fees may vary.
If you do your taxes, you can still get a refund anticipation loan! Some online tax filing services have this option available.
The Risk Regarding the Amount of Refund You Anticipated
If the amount of tax refund issued by the IRS is less than you anticipated, you might end up with less money than initially planned, especially after paying back the loan and additional fees.
When using loans against tax refund, make sure you don’t have any unpaid student loans, child support, federal or state debt, or back taxes. The IRS can reduce your refund due to unpaid obligations, leaving you with less money than you’ve planned for as well.
This can also happen if you made an error in your tax application, however. To avoid any mistakes, make sure to figure out how to do your taxes on your own.
As you can see, the convenience of same-day loans against tax refund can come with a price. It’s up to you to determine whether it’s worth it.
If you’re trying to figure out why are taxes so complicated, and you’d rather have a professional deal with your application, getting a refund anticipation loan may come as a bonus.
If you usually pay for tax preparation services, perhaps you should consider a tax refund advance loan that will give you access to your funds significantly faster.
How to Get a Loan Against Tax Refund
To apply for a refund anticipation loan, you have to file for your federal income taxes return.
Every year (usually by the end of January) the IRS opens the tax season and starts accepting tax returns for the previous year. For example, people filing taxes in 2020 are filing for the year 2019.
After the IRS processes the paperwork, it issues refunds to taxpayers. If you’re not keen on waiting, especially if you fill your application early, getting a RAL can be the solution.
If you decide to borrow against your tax refund, keep in mind that there is a minimum anticipated refund amount you will need to qualify. This amount depends on the company you’re applying to. In addition, you may only get a part of the anticipated refund since there is also a maximum loan amount.
Since it’s a secured loan, the criteria for getting approved are not as strict, especially when it comes to your credit score.
Can you get a loan against your tax refund? That depends on your anticipated refund, tax history, any existing debt, and with some lenders, your credit history.
In the application process, you will also have to provide identification and contact information, as well as the details of your previous tax return.
Once approved, your loan amount can be deposited into your account or on a special card. These options can also come with a certain fee, so make sure to know the clear overall cost when deciding.
When You Can Expect a Loan Against Tax Refund
If your application is complete, depending on the lender, you may have funds at your disposal within 24 hours. Sometimes it can be up to a few days, but usually, it’s very fast, especially compared to when the IRS issues a refund.
Tax Refund Loan Alternatives
If you are used to doing your taxes on your own and would rather keep it that way, a refund advance loan could be pricier than you’re willing to pay, especially if it has additional fees and interest charges.
If, for whatever reason, tax refund loans are not the option for you, we’ve provided a few alternatives that can ease your budget while waiting for your refund:
Some lenders offer personal loans with smaller loan amounts that get approved and funded quickly. Depending on the company, the APR is usually between 6% and 36%. The better your credit score and credit history, the more you can qualify for better terms. These loans can also have longer payment periods, which can be more comfortable than loans against state tax refund.
Credit Cards With 0% APR
Credit cards can be a great payment method if you plan things appropriately. Some lenders have offers that involve an interest-free period where you can use the credit card without any interest. It usually lasts between 6 and 18 months; as long as you pay back everything within that time frame, you won’t be required to pay interest.
Payday Alternative Loans
Some unions offer the option of the alternative payday loan to their members. The APR for these types of loans is set at 28% and fees are around $20.
Whether you decide to take a loan against your tax refund or choose an alternative, you now know everything you need to consider when applying. Carefully weighing the pros and cons of refund advances will help you make a smart choice.
Knowing ways you can have your tax refund at your disposal before it’s issued by the IRS is helpful when you’re strapped for cash; understanding your way around taxes is always important as well. To keep up to date, make sure to also inform yourself on what property taxes are and how they work.
Yes, you can. If you meet the required minimum amount of anticipated refund and other requirements, you can get a secured loan that will allow use of your money from your tax refund without having to wait for the IRS.
Certain tax preparation companies like H&R Block, Liberty Tax, and Jackson Hewitt provide loans against tax refund. The great news is that you can also apply online.
If you’re doing your own taxes, some online tax filing services offer this option as well!
When you file your federal income tax return, you can also apply for a refund anticipation loan. After giving the proper information, your application will be considered. Approval depends on the refund amount anticipated, your tax history, existing debt, and more.