What Is a Tax Refund Loan?Ī tax refund loan is a short-term loan or advance on money you expect to receive after filing a federal tax return. Here’s what you need to know about tax refund loans to decide if one is right for you. Tax preparation companies charge for filing services to get your tax return money in advance. The application process is uncomplicated, but it’s not free. Tax refund loans typically require no credit check. You receive an interest-free advance, as a paper check or direct credit, to a card or bank account. Some tax preparation services offer tax refund loans or refund anticipation loans. If you know you’ll receive a reimbursement when filing your return, you may want to consider a tax refund loan. This will ultimately lower the amount of your tax refund come March or April each year, but it can improve your cash flow all along.It’s hard to wait for your income tax refund check when you need your money sooner. Over the long-term, you can also consider adjusting your withholding on your paycheck so you get access to more of your hard-earned income throughout the year. For example, borrowing from friends or family, using a credit card, or applying for a personal loan from a bank or credit union can be much less expensive than the worst tax refund loan options. "Once you have all of your documents, it is best to file as quickly as possible, and do so through the e-file program at the IRS," said Joseph, adding that consumers who file early enough can get their tax refund back in as little as 10 days provided they opt to have their refund direct deposited in their bank account.Īccording to Griffin, other ways to avoid having to take out a refund anticipation loan include saving up money throughout the year to cover any unexpected expenses and exploring alternate sources of funding. Joseph, who is an attorney and accountant for Joseph & Joseph Tax & Payroll in Williamston, Michigan, adds that another way to avoid tax refund loans involves filing your taxes as early as you possibly can. I already mentioned how Jackson Hewitt offers a no-fee anticipation loan option, and other tax preparers like TurboTax offer similar refund loans with no fees and no interest charges required. At the very least, check around for tax refund loans that don't have any extra charges to see if you can qualify. To avoid the high costs and fine print associated with refund anticipation loans, you should just not get one. Ultimately, they might decide to take out a tax refund loan to get their money faster, even if it means sacrificing part of their refund along the way. They might opt to maintain the same level of withholdings from their paycheck to achieve a large refund the next year as a result. For example, consumers might use their tax refund loan to pay off debt accrued throughout the year, but without making any lifestyle changes that stop them from racking up more debt over time. ![]() Griffin also adds that some critics argue tax refund loans can create a cycle of debt for taxpayers who are already struggling financially. However, you may not find this out until after you spend the money and it's too late to adjust your loan amount. If you think you're getting $3,000 back but your tax refund actually winds up being reduced to $2,000, for example, you would be on the hook for paying the difference. When this happens, the borrower may be left unable to repay the loan. In addition to having to pay unnecessary fees, Griffin says there is a risk that the tax refund may be delayed or reduced for various reasons. When all the hidden charges are combined, FINRA says you can expect to pay approximately $200 in fees on a $2,000 tax refund, or around 10%. ![]() ![]() These can include loan application fees as high as $100, tax preparation fees of around $40, check processing fees, fees for setting up a temporary account, and more. While Jackson Hewitt does offer a "no fee" refund anticipation loan, not everyone can qualify.Īccording to the Financial Industry Regulatory Authority (FINRA), some refund anticipation loans come with other fees that may not be totally obvious. ![]() This tax refund anticipation loan has a finance charge of 6% of the loan amount, and the annual percentage rate is 34.22%. Take the Early Refund Advance Loan from Jackson Hewitt, for example. In fact, many tax refund loans come with high interest rates and fees that can eat into the amount of the tax refund, said Griffin.
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