You might not like to do your taxes, but the complex task results in a huge tax refund. Getting some refunds can be beneficial for you, in the long run, to pay off the bills, take a staycation, or other things that you must be craving. It could take a couple of weeks till the time you have your tax refund in your hands. Many companies offer a tax refund advance loan, that would allow you to obtain the funds much faster. But everyone wants to avoid these tax refund loans as they can be quite expensive because of the high-interest rates and the various fees involved. It is vital to figure out how these loans work and learn how they are beneficial to cash-strapped taxpayers.
What is Tax Refund Advance Loan?
It is a loan that is established to grant access to the tax refund before you receive it from the IRS. Once you receive the tax return, you would get to know how much you have received in the form of the tax refund. This is a loan that you can take before filing the tax return, in anticipation that you would receive a refund. To get this loan, there is a process to go through, tax companies will thoroughly analyze your financial information to calculate the amount of refund that you must receive, and accordingly, it offers to lend that much-needed money. Mostly, you will have the funds in your hands, even before filing the tax return, which means you can get easy access to the funds much sooner.
Where to get the loan?
The procedure to receive the refund in advance. The tax refund advance loans are segregated into two divisions:
- Direct Deposit into a bank account
- Prepaid Card
These loans are usually issued swiftly, and almost the same day.
A tax refund advance loan is differentiated based on the cost. When a person borrows more to take a tax refund advance loan for 0% APR up to the first $1000, then it comes with an extremely high-interest rate. If you opt to receive the tax refund advance loan via a prepaid card, there may be a list of fees that applies to a prepaid card account. There may be chances that you might end up losing funds to access those funds. In case, you want cash, you would have to draw it via your prepaid card at an ATM, which might result in various ATM fees.
The demand for tax refund loan is big because of the following reasons:
Easy access to fund: The benefit of a tax refund loan is that you easily get access to the money, that you would receive in your refund sooner than you would have if you have had waited for the refund to be received from the IRS.
Secured Loans: Tax refund advance loan utilize the tax refund as collateral to withdraw the lump-sum amount. This reason makes a high chance of approval. Mostly, there is no sort of any hard inquiry on the credit report, which means the credit score will not be affected, if you take out a tax refund advance loan. Also, a bad credit score does not mean that you will not be considered.
Fees involvement: It lets you get your money sooner, but on the other hand, the disadvantage is that it would charge a price for it. The method of paying the price can be in the form of interest or paying fees. Also, using tax refund loans causes you to get utilized to have a bad financial habit.
It is difficult to recommend that anyone must use the tax refund advance loan or not. The cost of the loan could be high, so one must keep these factors in mind before applying.