Tax refund anticipation loans provide a way of gaining access to the funds due from a tax refund faster than if you were to wait for the IRS to process the refund. In essence, they are short-term loans against the anticipated income from a tax refund.
Whatever this type of loan will be suitable for you or not, will depend on your personal circumstances. While a tax refund anticipation loan will unduly give you the virtual instant access to the money that you are owed by the government, there are also some disadvantages that you should bear in mind too.
The main advantage of a refund loan is that you will have the funds that you expect to receive from your tax refund available to spend earlier. This type of short-term loan is usually processed very quickly and you could have your money in your checking account within just a few days. That can be especially beneficial if you have urgent bills to pay and you can not wait for the return to come through the usual channels.
The main disadvantage of these types of loans is that you will be charged interest and fees, which can be quite high, and that will reduce the amount of money that you receive from your refund. It is important when you apply for this type of short-term loan that you are fully aware that it is a loan, it is not, as some advertisements would lead you to believe, a means of getting your tax refund processed faster.
Another potential disadvantage that consumers need to be aware with this type of loan is that, if the tax refund is delayed or the IRS refuses the refund, the loan will still be outstanding and it will still need to be repaid.
When is a tax refund anticipation loan appropriate?
As with all types of loans, the need for a tax anticipation loan will depend on your own circumstances. If you do not need the funds urgently, then it would be better to wait for the refund to be processed in the normal way than it would be to spend money on the fees and the interest of a loan.
On the other hand, if you need funds urgently and you are prepared to receive slightly less of your refund than you might have originally expected, a tax anticipation loan would make those funds available to you within just a few days.
If you do decide to apply for a loan in anticipation of tax refund, it is better to shop around rather than taking the first loan that you see advertised or the loan that your accountant offers you. There are lots of loan companies who provide this type of finance and the interest rates and fees can vary importantly, so a loan matching service is often the best option, because you may be offered a loan by more than one lender, in which case, You can look for the best deal that is available.
It is always important when agreeing to any loan, including tax refund anticipation loans, that you read the terms and conditions very carefully and that you understand what the cost of the loan will be and when the loan will need repaying.