Nowadays, there are many companies out there providing different types of loans. A instant tax refund loans is based on anticipated federal income tax refund; you pay interest and fees to obtain the loan. These loans are offered in January through to the end of the tax session in April. However, these loans are no longer available in banks, but some private firms still provide it. This article outlines five things that you should know about the tax refund loans.
Facts to know
You are borrowing your money
Tax refund loans are short term loans which are mostly issued by private firms that are secured by the expected refund often within 7-14 days. Taxpayers who opt to apply for a tax refund usually receive it right away minus fees charged to the loan. In exchange, a taxpayer pays interest that when expressed as an APR (annual percentage rate) could add up to a triple digit rate. The lender sets up an account which is used to receive the taxpayer’s Internal Revenue Service (IRS) refund. When it arrives, the money goes straight to pay the loan.
Similar to all other types of loans, a tax refund loan is risky especially if the tax refund is delayed, denied or lower than expected. In any case, a Tax refund loan increases a taxpayer’s debt burden, and though they are a type of instant loan, they can be very expensive in the long run in case anything should happen with the tax refund. Debt can pile up and hurt credit score in the long run.
There are some fees attached to tax refund loans which include loan application fee, tax preparation fee, cheque processing fee, a peace of mind guarantee fee paid to the tax preparer stating that you will get the refund cited on the tax form and a refund account fee for servicing the temporary account created. Besides the fees, this loan also comes with high interest rates.
Businesses that file tax returns are the most common places taxpayers can get instant refunds, but they are not the only place. Boat showrooms, car dealership, electronics and furniture stores also offer tax refund loans.
There are less expensive and better alternatives to tax refund loans. The best is to be patient for IRS to send tax return free of charge. You can e-file, and the refund will be deposited directly in at least eight days. These few days or weeks are worth the wait as it helps to save the high charges associated with the loan.