What To Know About Tax Refund Loans

Andrii Zastrozhnov/GettyImages; Illustration by Hunter Newton/Bankrate

Are you expecting a tax refund from the IRS? You may not have to wait until the IRS processes your return and sends you a direct deposit or check in the mail.

If the tax preparation service you use offers tax refund loans, you could get an interest-free advance on your money. These loans are easy to qualify for and generally don’t require a credit check. However, they may not be sensible considering you may have to spend money to access funds that belong to you.

What is a tax refund loan?

Tax refund loans are available to taxpayers who’ve filed a federal income tax return and are eligible for a refund. These loan products are generally for a set amount, typically between $250 and $4,000, and are offered between January and late February.

These loans are offered by some tax preparation companies, which means you have to file your tax return through a participating company to qualify. Most tax preparation companies charge a fee for their service — for example, it costs at least $99 to file your taxes through H&R Block, on top of any loan fees.

How do tax refund loans work?

When you file your return, you can apply for a tax refund loan if it’s offered by the tax preparation service you use. If approved, the funds are dispersed into a proprietary checking account or loaded on a prepaid card. The funding time depends on the lender and how you opt to receive the loan proceeds.

You won’t repay the lender or company offering the loan, though. Instead, it will be taken from your refund before it’s sent to you.

Where can you get tax refund loans?

H&R Block

The Refund Advance loan from H&R Block is offered to clients through Pathward, N.A. You can apply without impacting your credit score, and you won’t pay lender fees or interest.

Turbo Tax by Intuit

The Refund Advance from Intuit Turbo Tax is a fee-free, zero-interest loan product. It’s offered through First Century Bank or WebBank to Turbo Tax filers.

Jackson Hewitt

Jackson Hewitt features two Refund Advance loan products, both underwritten by Republic Bank & Trust Company. The Early Refund Advance loan is subject to a 35.96 percent annual percentage rate, or you may qualify for a no-fee Refund Advance Loan and avoid paying interest or fees.

Pros and cons of tax refund loans

These loans come with benefits and drawbacks that could make them a good fit for some, but not others. Before agreeing to a tax refund loan, be sure to weigh the pros and cons.

Pros

• Access to immediate cash instead of waiting for the IRS
• Typically fee- and interest-free
• Allows you to handle an unexpected financial emergency
• Can help you pay down high-interest debt, make a big-ticket purchase or use the funds however you see fit

Cons

• May come with interest charges similar to personal loan interest rates
• If your refund is delayed, you could be left with a hefty debt load
• Must apply during filing
• Deadlines are often in mid-February

Should you get a tax refund loan?

Taking a tax refund loan can make sense in cases when you need money quickly and the loan won’t cost you anything, meaning there are no fees or finance charges attached. It can also make sense to obtain a tax refund loan if it would cost you more out of pocket to wait for the money to arrive from the IRS.

For example, imagine you have high-interest debt on a credit card that could be paid off immediately with the loan. Borrowing a tax refund loan could save you from paying additional interest while waiting for the IRS to send your refund.

If you don’t need the money urgently and you don’t have any high-interest debts, it may make more sense to wait for your tax return to arrive.

Tax refund loan alternatives

If you’d prefer to explore other options or aren’t getting a refund but need cash, these alternatives could work for you:

• Online loans: Use an online lending marketplace to compare personal loan products with competitive rates. Fixed personal loans are payable in equal monthly installments over a set period, typically between three and five years.
• Short-term emergency loans: These loans act as payday loan alternatives and can get you fast cash without costing a fortune in interest. Many lenders have low credit score requirements, so you could get approved even if your credit score isn’t up to par.

These online lenders offer fast funding if you need cash now.

Bottom line

Tax refund loans may offer a fee-free solution if you need money quickly during the brief window during which they’re available each year. But if you’re not pressed for money, it can be a better bet to wait to receive your refund from the IRS or explore other options. Just remember, when considering any type of loan, that it’s important to review all the fees and interest charges carefully to ensure you understand the true cost of borrowing.