This article discusses how to get a tax refund advance and whether getting tax refund anticipation loans is a good idea.
The idea is pretty simple. Many people are short on cash and they know that they will be receiving a Tax Return check. In return, and for a small fee, there are companies who will give you a tax refund advance, often referred to as tax refund anticipation loans, so that you can receive your money immediately.
Seems simple, yes? You receive your money in hand right away and the loaning institution makes a little profit by providing you this service.
We will will first take a look at the process: How do you go about getting a tax refund advance? Then, we will look at whether tax refund anticipation loans are a good idea for you or if they are just a way to line the pockets of the banks.
How To Get a Tax Refund Advance Loan
The process to receive an income tax refund advance is not that complicated. It generally works in one of two ways.
First, if you use a well-known tax preparation company, such as H&R Block, they provide tax refund anticipation loans in house and on the spot. It works like this: H&R prepares your taxes and so they know the refund amount to which you are entitled. At this point, they offer to pay you that amount on the spot in the form of a loan. You can receive this money in the form of a check or “loan proceeds to your H&R Block Emerald Prepaid MasterCard® 1 for up to $2,800 on the spot.” Read more on the H&R Block Refund Anticipation Loans and Services page.
While H&R Block bundles tax refund advances in with their tax offerings, other money lending companies offer tax refund anticipation loans as well. Two of these are Money Mart and Speedy Cash. Each of these companies will assist you in getting quick access to cash via a tax refund advance. Usually, they will assist you in e-filing your taxes so that they can verify your return quickly. You may also be able to find other companies who perform tax refund advances simply be walking down the street. Many companies who provide payday loans also perform tax refund anticipation loans.
Now that we know how to get a tax refund advance, let’s ask the question: Is it a good idea?
Tax Refund Anticipation Loans: Good or Bad?
You will find many consumer advocate groups who advise against a tax refund advance. In the article Beware Of Tax Refund Loan Programs by ABC7 news, they say that, “more than 12 million taxpayers received a refund advance in 2004, paying a total of $1.6 billion dollars in fees and interest. ”
Essentially, they are saying that tax refund advances are good for the companies that provide them and bad for the consumer who does not receive all of their money.
Obviously, these loan companies are going to take a fee for the loan services that they are providing. As a consumer, it is important for you to understand how your tax refund advance loan works in order to avoid getting duped. You need to ask direct questions: How does this loan work? How much will it really cost me? Are there any extra fees or charges? Once you understand the exact terms, you can then make a wise decision as to whether you want the loan.
So, is a tax refund advance a good or bad idea? Well, as we stated, many consumer advocate groups advise against them because you do not receive all of your money. However, these people who do the advising probably have not had financial problems where they need cash immediately to pay their phone, electricity, or apartment bills. Though banks do collectively make a lot of money on tax refund anticipation loans, they only make a small amount on you. Thus, if you need cash now, a tax refund advance loan may be a good idea. (Take a look at How Long Does It Take To Get Tax Refund Back to see the basic time frame for receiving a tax refund.)
Tax Refund Advance: Summary
In this article, we have discussed how to get a tax refund advance through tax refund anticipation loans. There are many companies who perform this service. If you use a tax service such as H&R Block, they will provide this service for you in-house. Also, tax refund advances are available through third party loan companies.
The loan companies do take a small portion of your tax refund as a loan processing fee. This is permissible as they need to make money too. As a consumer, you need to know exactly how much they take and how your income tax refund advance will work. If you need cash immediately, and are comfortable with the tax refund anticipation loan terms, a tax refund advance may be a good choice for you.