If you need cash while waiting for your income tax refund, some tax preparation services offer tax refund loans.
Tax refund loans, also called “refund advance loans” or “refund anticipation loans” let you access your refund early. The tax preparation company lends you money that is repaid with your tax return. Some loans charge zero interest, while others include interest if you want the funds before 2025.
Tax preparers typically require borrowers to file their taxes with them, which can come with a fee. In paying a tax preparer just to get the advance, you’re basically paying to access your own money.
What are tax refund advance loans?
Tax refund advance loans are short-term loans that are repaid through your upcoming IRS tax refund. Loans are usually offered from December through February, and amounts can range from $100 to $4,000. In most cases, the loan amount is deducted from the tax refund once it’s issued.
Some loans can be dispersed within 24 hours on a prepaid card or within a few days as a direct deposit to a bank account.
To be eligible for most tax refund loans, you must have your taxes prepared by the company offering the loan, and that might mean you’ll pay a tax preparation fee. Tax preparers may have a minimum refund amount requirement to qualify, and you may get only a portion of your expected refund in advance.
Companies such as Jackson Hewitt, H&R Block and Intuit’s TurboTax offer tax refund loans. But it’s best to check directly with the preparer, as each one offers different loan amounts, fees and deadlines for their tax refund program.
How do tax refund loans work?
You submit an application for a refund loan when you file your return with a tax preparer.
Most tax preparers partner with a bank that lends the funds. For example, Republic Bank issues tax refund loans for Jackson Hewitt.
Tax refund loans don’t usually have the same credit score requirements as unsecured loans, but the bank may review an applicant’s credit profile with a soft credit inquiry that does not affect their credit score.
Qualification can depend on the amount of your expected refund. Tax refund advance loans require identity verification and a review of your tax return inputs and history.
Once approved, you can typically access the loan amount quickly in a checking account provided with the tax preparer, on a prepaid card that could come with restrictions and fees, or the funds will be deposited into your bank account.
The tax preparer will automatically deduct the loan amount, plus any interest, from your refund when the IRS releases it.
How much does a tax refund loan cost?
While a tax refund loan may have zero interest, tax preparation fees can vary depending on the complexity of the return.
Let’s say you get a $500 tax refund loan against your refund that arrives a month later. If you pay an $89 tax prep fee to file your taxes, the fee is equivalent to an annual percentage rate of about 217%. Although, if you were going to pay for tax prep anyway, you might value the loan differently.
Some tax refund loans may have interest charges, which can make a small loan feel expensive. A $100 tax refund loan with Jackson Hewitt’s Early Tax Refund Advance has an APR of 35.96%, according to the company’s website. That’s not including tax preparation fees or prepaid card fees, which can add up on a small loan.
While an advance can be a way to get cash quickly, it may be cheaper to wait for the IRS to send your refund directly to you.
Pros and cons of tax refund loans
Pros:
- You can get a loan without a hard credit pull.
- Loans may be interest-free.
- Funding is fast.
Cons:
- You may have to pay a tax filing fee.
- You may be required to open an account or debit card of the tax preparer’s choosing.
- The loan is subtracted from your IRS tax refund.
Tax refund loan alternatives
You could get a lower rate on the same size loan elsewhere and then use your refund to pay it off.
Cash advance apps provide a low- or no-fee advance on your paycheck. You can typically borrow up to a few hundred dollars, and the app will withdraw the advance amount from your bank account on your next payday. However, they may charge a subscription fee, an expedited funding fee or ask for an optional tip. These apps can be helpful if you need funds quickly, but they aren’t a long-term solution.
Payday alternative loans, offered by some credit unions, allow their members to get payday alternative loans for up to $2,000, depending on the type of loan. These loans have a maximum APR of 28%, with application fees capped at $20.
Small personal loans offered by some online lenders start at $1,000 with next-day funding after approval. Rates range from 6% to 36%, and qualifications vary by lender. Good or excellent credit borrowers, those with a 690 score or higher, with high incomes and little existing debt qualify for the lowest rates.
