Things to Consider before signing for a Tax Refund Advance Loan

Tax refund loan products are staging a comeback in recent years, with various vendors rolling out enticing perks tied to your tax refund. Leading tax preparation services are introducing new offerings for tax refund loans this year, but it doesn’t stop there. From car dealerships to furniture stores, numerous places sweeten the deal if you choose to file your taxes through their services. The concept is straightforward – they propose using your refund to offset the cost of a product. Essentially, these lenders or tax prep companies guide you through the tax filing process, promising an immediate payout for the refund you’re anticipating. Given the delayed refunds for Earned Income Tax Credits or Additional Child Tax Credits until February 15th due to the PATH ACT, many taxpayers are exploring these tax refund advance products.

The Evolution of Tax Refund Loans

Once popular Tax Refund Anticipation Loans (RAL) faded away around 2012 due to regulatory actions, but a comparable product has made a comeback – the tax refund loan. In 2024, leading services like H&R Block, Liberty Tax, TurboTax, and Jackson Hewitt are back in the game, offering advances up to $7000. Some even promise same-day approval and funds. However, bear in mind that the advance amount will be subtracted from your eventual tax refund, affecting the final payout to the taxpayer.

What are tax refund advance loans?

Considering a tax refund advance loan? These short-term loans, usually available from December to February, let you borrow from $100 to $6,500. Repayment happens once your IRS tax refund is issued. Some lenders provide quick disbursement, with funds on a prepaid card within 24 hours or a few days via direct deposit.

Eligibility often requires having your taxes prepared by the lending company, potentially incurring a tax preparation fee. Some lenders might set a minimum refund amount to qualify, and you might receive only a portion of your expected refund upfront.

Where to get tax refund loans

Jackson Hewitt

Jackson Hewitt offers two refund advances. The Early Refund Advance loan, which has a 35.53% annual percentage rate, is available starting in December 2023, while the No Fee Refund Advance loan, with a 0% APR, is available in January 2024. Republic Bank & Trust Company issues both.

H&R Block

H&R Block also offers two advances. The Emerald Advance loan is available through December 2023. Unlike zero-interest tax refund loans, the Emerald Advance operates like a traditional loan with an APR of 35.9%. You can use your tax refund to repay the loan or repay by debit card, bank account transfer or check. The loan must be repaid by March 31, 2024.

H&R Block’s Refund Advance loan is available starting in January 2024. The Refund Advance has no interest or fees, but it requires filing your taxes with H&R Block. Pathward, N.A., issues the Refund Advance loan.

Tax Refund Loan from H&R Block

You can prequalify now for this Refund Advance loan without any impact on your credit score. The refund loan from H&R Block starts on January 5th and is advertised to loan up to $3,500 with 0% interest. When you file your taxes with H&R Block you can apply for the loan and get it as early as the day you file. If approved, this loan is loaded to an Emerald Prepaid MasterCard.

Emerald Advance from H&R Block

The refund loan applications at H&R Block opened in November. You can make an appointment online now without a W2 to apply. A paycheck stub, proof of ID, and address are needed to apply. The loan is also disbursed to an Emerald Prepaid MasterCard. You can use the credit line year-round if you pay your loan off by February 15th each year. There are annual fees and a pretty hefty interest rate. Other fees apply, so make sure you read the fine print before signing for the loan. This loan from H&R Block is advertised to give you up to $1,250.

Intuit TurboTax

Intuit TurboTax’s zero-interest Refund Advance loan is funded by First Century Bank. Unlike other tax preparers, TurboTax allows customers to apply online. If approved, borrowers must open a Credit Karma Money checking account to access the loan.

Liberty Tax Service

Liberty Tax Service offers tax refund advances. The Early Refund Advance Loan, which has a 35.99% APR, is available on January 3, 2024. Meta Bank or Republic Bank & Trust Company issued the refund advance.

Easy Advance Loan from Liberty Tax

This loan becomes available on January 1 and is advertised with no fees or interest. An Easy Advance (EA) is a $500-$6,250 loan secured by your tax refund and is offered by Republic Bank & Trust Company, member FDIC, to eligible taxpayers. These refund advance loans are disbursed as a check printed in the tax office, loaded onto a NetSpend® Liberty Tax® Prepaid MasterCard® or directly deposited into a bank account. Valid at participating Liberty Tax Service locations.

TPG Tax Service

Santa Barbara Tax Products Group offers The Fast Cash Advance Loan, which has a 35.99% APR and is available on January 2, 2024. First Century Bank issues the refund advance.

Santa Barbara Tax Products Group – Fast Cash Advance

Tax preparers can offer Fast Cash Advance loans through First Century Bank in amounts between $500-$7,000. If approved, your money will be available by check, direct deposit, or GO2bank Visa debit card.

How do tax refund loans work?

When filing your return with a tax preparer, you can apply for a refund loan. Many tax preparers collaborate with banks that offer these loans; for instance, Republic Bank & Trust Company provides tax refund loans for Jackson Hewitt.

Unlike unsecured loans, tax refund loans typically don’t have stringent credit score requirements. However, the bank may assess your credit profile without impacting your credit score.

Approval often hinges on the anticipated refund amount. Identity verification and a thorough review of your tax return inputs and history are customary for tax refund advance loans.

Once approved, you can swiftly access the loan funds—either in a designated checking account provided by the tax preparer, on a prepaid card (which might have restrictions and fees), or through direct deposit into your bank account.

Upon IRS release of your refund, the tax preparer will automatically deduct the loan amount and any interest. This streamlined process ensures a prompt resolution.

Why Tax Refund Loans Aren’t Always a Great Option

While tax refund advance loans may seem appealing, they should be approached with caution. While they may be a viable option in extreme circumstances, they are generally not recommended unless you are facing a financial crisis. One significant drawback is the lack of stringent regulations governing this practice, with rules varying widely from state to state. Consumer advocacy groups often criticize these loans as predatory, targeting vulnerable individuals with low incomes who rely on a lump sum. Additionally, the structure of refund loans can inadvertently encourage dishonesty. Since the loan amount is tied to the consumer’s tax refund, lenders may be tempted to manipulate details to maximize the refund, potentially leading to fraudulent practices. This not only raises ethical concerns but may also increase the risk of triggering an audit for the borrower.

A Tax Refund Loan Could Backfire

Entering a tax refund advance could lead to debt owed to the lender, especially if there are garnishments against your tax refund. Debts like unpaid tickets, child support arrears, student loans, and other specific obligations may be offset, reducing the anticipated tax refund. The money lent to consumers is given with the expectation of a certain amount from the IRS, potentially requiring repayment with a high interest rate. In some states, this rate can range from 30-50% APR, along with additional fees. It’s crucial to be aware of these potential outcomes before opting for a tax refund advance.

Considering a tax refund loan?

In all likelihood, it’s not the best choice. The service often lacks the quality and meaningful support needed, leaving consumers without adequate protections for their interests. The associated costs and potential pitfalls outweigh the benefits. If you find yourself in financial trouble, thorough research on the lending company is crucial to avoid falling into debt. Make informed decisions to secure your financial well-being.