Watch Out for Tax Refund Advances

by Miranda Marquit · 4 comments

As tax season kicks into high gear, you are likely to see a number of commercials touting the virtues of a tax refund advance. This can be a tempting proposition. You go in, have your tax return prepared, and the nice folks cut you a refund check right there. Otherwise, you could get your money between two weeks and two months later depending on how you choose to receive your refund by check or direct deposit.

Of course, there’s a catch, as a tax refund advance is actually a loan. And, like all loans, it comes with fees. Depending on the tax preparer, fees charged and other factors, you can pay between $30 and $200 (or more) for your tax refund anticipation loan. The check you are cut typically is the anticipated refund, minus the fees. When your refund comes in, you have to pay back the loan. (In some cases, it is possible for the preparer to accept the refund for you, so that you don’t have to do anything else.)

Tax preparers aren’t the only folks who offer a tax refund anticipation loan. Many payday loan and title loan places will provide you with a loan based on what you are expected to get back. Just bring in your tax return, and you can get a loan against what you are likely to receive from the government. As you might guess though, the fees on the loan from the payday places are quite hefty.

When you get a tax refund loan, you are borrowing your own money. This is a great deal for whoever is lending you the money. You borrow your own money, but you pay them the interest. In this scenario, you are paying for the privilege of having what is yours anyway a couple weeks faster. Barring a pending catastrophe, it doesn’t make much sense to pay someone else to get what’s already yours.

Emergency Situations

Of course, there are emergency situations in which a tax refund advance might make sense. You might be in a situation where your only savings is the anticipated tax refund, and you may need those funds immediately. In such cases, it might make sense to get a tax refund anticipation loan, rather than try to get a loan elsewhere. You can have the money in hand to cover whatever dire emergency you are facing. However, you might be better off getting your tax refund advance from the tax preparer, rather than going through a payday loan company, since you might have lower fees.

Just remember to carefully consider your situation first. With direct deposit tax refunds, it is possible to get your money from the government in as little as two or three weeks. If you can hold out that long, it is generally worth it to do so, since you will get the full amount, rather than losing some of your tax refund to fees and other charges.

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  • Kate says:

    I do that every year in Canada because I generally need the money. This year I will be moving back to the USA about the time the refund would come, and besides, the person who delivers the mail to our building apparently cannot read English and our mail frequently is delivered to the wrong apartment. Our floor has been pretty good about re-delivering bills and Christmas cards and the like to the proper apartment, but one of my bills never showed up at all, and triggered robot calls every night at 6:15 p.m. until I finally reached a human. I also got someone else’s tax refund delivered to me last year. I am honest. Others are not.

  • Samson says:

    Those who take advantage of tax refund advances are usually paying huge interests. I would rate this practice as low as payday loans. It’s that bad, so don’t do it.

  • Thanks for writing this. I had no idea how expensive it was to get the “advance” on my tax return.

  • Robert says:

    Those are such a scam. They give you a personal loan and you repay it with your tax return. It usually takes 8 or 10 business days for the return to be processed anyways. I’ll wait and save the $200.

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