What are Tax Refund Loans and Should You Get One?
Trevor Mahoney is a financial services writer and content creator based out of Los Angeles, California. He holds a Bachelors of Science in Finance from Santa Clara University. In his free time, he enjoys hiking and lounging on the beach.Read full bio
At a Glance
As you go to prepare your taxes for the year, learning that you will receive a tax refund is an exciting event. The only downside is the fact that receiving your tax refund will take a little bit of time. In the event of a financial pinch, not having access to this sum of cash can be challenging, but this is where a tax refund loan can help.
In this article, you’ll learn:
What is a tax refund loan?
As anybody who has received a tax refund loan will know, the money gets deposited directly into your account within a few weeks after submitting your taxes. A tax refund loan, sometimes called a tax advance loan, allows you to take this sum of money out early, interest free, between January and the end of February on average.
How do tax refund loans work?
Tax refund loans are like other loans in that you receive a lump sum of money up front. Where they differ is that you never need to make a payment back to the tax filing service that provides you with the tax refund loan. Rather, the tax advance you are provided with will be taken out of your refund directly by the filing service, with any remainder being given to you after.
Pros and cons of tax refund loans
As with all types of loans, there are pros and cons to consider when looking at tax refund advance loan:
Where can you get a tax refund loan?
If you are interested in the idea of a tax refund loan online, there are a number of online tax filing services that will allow you to take a loan out:
1. H&R Block
As one of the leading tax filing services, it’s only fitting that H&R Block also offers tax refund loans. Refund loans with H&R Block can go up to $3,500 in increments of around $250-$500, up to that amount. This loan is a 0% interest loan, meaning you won’t be responsible for any more money.
2. Intuit Turbo Tax
Another renowned tax filing service, Intuit Turbo Tax allows a user to take out a tax refund loan. This amount goes up to $4,000 and is only available during certain months. As with H&R Block, you won’t need to worry about being charged interest for this tax refund loan.
3. Jackson Hewitt
Jackson Hewitt also provides tax filers with a tax refund loan if they qualify. Their tax refund loans start in early December, however, this early loan only goes up to $1,000 and can have an interest rate as high as 35%. If you can wait until January, however, you will be able to qualify for their standard loan that comes at 0% APR and goes up to $3,500.
Is a tax refund loan a good idea?
A loan on tax refund can be a good idea if you need cash fast and are working with a tax filing service that charges no interest. Avoid taking out a tax refund loan that costs you in interest or fees, as this is the same as paying for your own money. If waiting for the tax refund would cost you more than taking on the tax refund loan or you need the cash badly, taking out a tax refund loan can be an excellent idea.
Alternatives to tax refund loans
A refund advance loan can be particularly beneficial to some, but other alternatives may serve you better. Consider some of the following in the event a tax refund loan isn’t right for you:
1. Personal loans
Personal loans are another alternative to consider if you are in quick need of cash but should only be used as a last resort due to the interest rate associated with it. This interest rate can vary from 6 – 36% and have a repayment period anywhere from two to seven years, which means it is a serious form of debt. If the amount of money you need is a smaller sum, consider a different option such as borrowing from friends and family.
Personal loans can help provide you with quick access to funds
Find personal loans to suit your needs
Related: Are personal loans taxable?
2. Payday alternative loans
An advance on tax return funds may not be right for you, which may have led you to look at payday alternative loans. This type of loan is a sum of money provided to you with a quick turnaround time for repayment and an abnormally high-interest rate. These loans should only ever be considered if you are certain, you can meet the repayment in a single billing cycle.
Related: How to get out of payday loan debt?
3. Loan apps
Online loan applications are available from a variety of lenders ranging from banks, online lenders, and third-party lenders. These loan types can vary in loan amount and tenor but be sure you aren’t taking on too much debt for money you need.
4. Low interest credit card
In some cases, a low interest rate credit card or 0% introductory period APR credit card can be a smart option to consider. Credit cards are best if the funds you need are lower, as the interest rate offered by most credit cards, even a low one, will sometimes be higher than that of other loan types.
Related: How to get a low-interest rate credit card?
Most tax filing services will not charge you any interest or fees to take out a tax refund loan but be sure to double check before agreeing to take out a tax refund loan. Filers such as H&R Block, Intuit, and others offer refund loans with no added costs.
In most cases, tax refund loans are available starting in January and ending at the tail-end of February. Some tax filing services may potentially allow you to borrow funds starting in December, but you may have to pay a higher APR and borrow a lower amount.
Your refund amount is determined by several factors including your income and potential credit. However, a major factor in determining the amount offered in your tax refund loan is the total amount of your tax refund. The loan will be a portion of this amount.
If you don’t qualify for a tax refund loan, there are other options to consider such as personal loans, borrowing from friends and family, as well as others. However, avoid any option that may cost you more money to borrow the funds than your tax refund will be worth.
In most cases, no, a tax refund will not affect your credit as you aren’t paying anything back. However, if a tax filer charges you interest for a period on the loan and requires repayments, your credit will be damaged if you stop payments.