Learn about tax advance refund loans before applying

If you're one of the millions of people who get a tax refund every year, you probably want it sooner rather than later. Depending on whether you file your taxes electronically or through the mail, it can take weeks or even months to get your refund.

That’s where tax refund advance loans come in. Tax prep companies will prepare and file your return and provide your tax refund amount as a loan that you can access almost instantly.

These companies use your tax refund as collateral, which lets you access those faster than if you had to wait for the IRS to process your return. But before you sign up for one of these services, be aware there are downsides to getting your refund early. 

What is a tax refund advance loan?

When you take out a loan, the lender usually wants some sort of collateral. In the case of a tax refund advance loan, the lender uses the promise of your future return as collateral.

Most companies have a limit on how much they will lend you, which also depends on the amount of your anticipated tax refund. For example, if you’re only supposed to receive $100, then you may not even be eligible for a tax refund advance loan. Most companies have a minimum amount that you must receive as a refund to qualify. Jackson Hewitt’s website states, “To be eligible for the $1,500 ETRA, your expected Federal refund, less authorized fees, must be at least $4,600, and most approved applicants get $300.”

Terms and rates for tax refund advance loans vary widely. For example, Intuit TurboTax does not charge interest and can provide up to $4,000. They also claim that you can receive the money within a minute after the IRS accepts your return.

However, you will have to open a checking account with Credit Karma Money to receive your advance. Also, residents of Connecticut, Illinois or North Carolina aren’t eligible for this program.

What are the downsides?

Before you start applying for one of these loans, you should know how the fees and rules work.

For example, Jackson Hewitt charges a 35.96% APR financing fee on loans between $100 and $1,500. They also have a no fee loan option that comes with 0% APR. Unfortunately, the fine print says “NFTRA Loan amounts are determined by your expected Federal refund, less authorized fees and underwriting.” Another downside? You have to file your taxes with Jackson Hewitt to apply.

“Thus, I really doubt there is no cost involved — even if they offer no fee and no interest, there is always a catch or an upsell,” said tax expert Crystal Stranger, enrolled agent and CEO at Optic Tax Inc.

H&R Block requires that you get your advance loan on a prepaid card and charges a $42 fee to transfer your refund to another bank account. That may be inconvenient, especially if you want to stash the funds in a savings account or use it to pay off another loan or credit card balance. For others, particularly people without a bank account, a prepaid card may be a suitable option.

“For the unbanked, being able to get a prepaid card with the tax refund on it may be worth the expense, especially when waiting for a check to cash that may take many weeks or months to arrive, and then still often facing fees to cash the check,” Stranger said. 

Plus, these options are only available in January or February. If you file your taxes in March or April, then you’re not eligible for a tax refund advance loan. 

Another important aspect to consider is that tax refund advance loans are only offered by the big tax prep companies. Your local CPA or accountant likely doesn’t provide these services. 

And many big box stores aren’t capable of filing your taxes if you’re self-employed or run your own business or have another complicated tax situation. In this instance, you might be better off hiring a professional accountant to do your taxes to maximize your refund, even if they don’t offer any kind of refund advance. 

If you need money now, then a tax refund advance loan is probably better than a payday loan or a title loans that have exorbitant interest rates, often up to 300% APR.

If you can wait a few weeks, using a credit card may be better because you might get your refund before the bill’s due date. Or if you have good credit, you can qualify for a 0% APR credit card offer.