Jonah JacobsIf you’ve seen a lot of advertisements for tax refund advance loans, it should come as no surprise. Why? Because tax season has people looking to get their hands on that refund cash as quickly as possible.
Why do people tend to get so antsy with their tax refund money? Because, depending on your situation, you could get a nice chunk of change all at once that can be used for a variety of things.
You could use your tax refund to pay down debt. It could be just what you need to finally build your emergency fund. You could start a savings account with it, or, as a reward, use your refund to go on a shopping spree or go on a mini-vacation.
Regardless of what you use the money for, getting a tax refund advance isn’t something you should jump into without being informed.
Here are a few frequently asked questions about refund advances that should give you the information you need to proceed:
What is a tax refund advance loan?
Whenever you file your taxes, there’s a chance that you’ll get money back in the form of a refund. This is because the IRS takes part of your paycheck and uses it as an interest-free loan for the government during the year.
Once tax season rolls around and it’s time to pay you back for that loan, the IRS issues a refund. Unlike people or companies, the government is a pretty safe bet when it comes to making payments on time. Lenders know this, which is why they can issue tax refund advances without too much worry.
In short, the advance lets you get ahold of at least some of your money, so you don’t have to wait until your return is processed. In exchange, the lender makes money via fees and interest until they get reimbursed once your refund is issued.
How does a tax refund advance work?
Here’s the entire process in a nutshell:
- You file your taxes.
- You get an advance loan that’s linked to how much you need and how much your refund will be.
- You get the advance so you can spend it how you see fit.
- The lender gets paid by staking claim to part of your refund to cover the loan.
- Any excess funds get transferred to you after the lender receives their share.
What’s the maximum amount you can get from a tax refund advance?
If you have a large refund that allows for it, you can get an advance up to $6,400. The lowest amount is usually $200.
What fees are associated with tax refund advances?
Take out a large advance, and you can expect to pay a fee of around 2% of the amount borrowed. This will vary according to the lender.
Some advances cost nothing. For example, you can get a no-cost advance in the $200 range by preparing your taxes with companies like H&R Block, Jackson Hewitt, and TurboTax, among others.
Should you get a tax refund advance loan?
The main benefit of a tax refund advance is that it lets you get the cash almost instantly. If you can get it without any fees, you can use part of your refund now without having to wait weeks for your refund to arrive.
Before applying for an advance, consider the fees and read all the fine print. Also, know that you may get the advance in the form of a branded debit card that will come with transaction fees (ATM withdrawals, etc.) of its own.
As long as you can get the advance for free, go for it. But if you already have savings and there will be a cost to the advance, you may be better off waiting.
