Expecting a payday from the IRS in the form of a tax refund but need the money faster than the government might pay out? A tax refund advance loan could be the option for you. These loans let you use your tax refund as security to get money right now. Find out more below.
In This Piece
What Is a Tax Advance?
In short, a refund advance loan is a short-term loan offered by select tax preparation services. The loan is taken out against your tax refund. If you’re approved, you’ll receive your loan money before the IRS processes your tax return—and sometimes as soon as the day you file your taxes. Usually, you only get a loan for part of your tax refund. It’s unlikely you’ll be approved for a loan for your entire tax refund.
Refund advance loans are also known as instant refunds, tax refund cash advance emergency loans, or tax refund cash advances. In essence, you borrow your own money and the IRS repays it to the financial institution when your refund is issued. If applicable, you receive your remaining refund directly from your preparer or tax prep software company.
How Do Refund Advances Work?
These loans are offered by tax preparation services or companies working with tax preparers. Here's a step-by-step guide for how to get a tax refund advance loan.
- Choose a reputable tax preparer or tax software company that offers tax refund advances. Review the costs associated with filing your taxes and applying for a refund advance loan. Some companies charge a fee or take a cut of the refund in return for providing you with the advance. You want to ensure you're not spending more on this financing option than you would on an alternative solution.
- Maximize your return. The more your refund is, the more you might potentially get in an advance. Before the final step, take time to ensure you're maximizing your refund with eligible tax deductions and credits.
- Complete your tax return. Once you’ve found a solution that works for you and determined how to maximize your refund, complete your tax return. You can usually decide at the end of this process if you want to go through with filing—and pay any fees associated with that. This lets you ensure your refund is worth the cost of filing and enough to support an advance.
- Select the option to receive a tax refund advance. Select the option for your advance if applicable. Some providers offer different levels of loans depending on your refund amount and other factors.
- Receive your money. The tax preparer or software company will send your advance as agreed. It could be in the form of a check, a deposit into a bank account or an instant transfer. Always read the fine print, though, because instant transfers may come with additional fees.
- Wait for the IRS to process your return. If you agreed to a tax refund advance, the IRS will typically send your refund payment to the organization that gave you the advance. It will take out what you owe, including the amount advanced and any fees, and forward the rest to your account.
Benefits of Tax Refund Advances
- You get your refund money faster—in some cases almost immediately.
- You can get emergency funding to take care of a need that won't wait until your refund comes in.
- Because your tax refund secures the advance, there typically aren't strict credit requirements.
Potential Downsides of Tax Refund Advances
The loan might feel free, but it's not. The companies offering these advances typically charge a fee for doing so. Depending on how much the fee is compared to how much you borrow, it can equate to a fairly high interest rate.
Qualifying for a Tax Advance
While you don't necessarily need good credit to get these types of loans, there are some things that might disqualify you. If there are reasons your tax refund might be offset—including owing child support, federal student loans, or back taxes—a lender is unlikely to advance the funds. Lenders may also consider factors such as your income.
Alternatives to Tax Refund Advance Loans
Your tax refund might not be the best way to get fast cash to cover an urgent need. Consider some of the options below, too, so you can make the right choice for your financial situation.
- A personal loan. You can apply for a personal loan to get cash to use for any legal purpose. You'll need a decent credit score to qualify for many such products, but you can get a loan with bad credit too.
- A home equity loan or line of credit. If you have equity in your home and decent credit, you could leverage it to get a home equity loan or line of credit. Those funds could be used to cover emergency expenses.
- A credit card. You might put the expenses on a credit card, especially if you have one with a low APR or an introductory offer that makes it easy to pay off the balance over time.
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Note that these options may require a certain level of credit. Check your credit with ExtraCredit® before you choose a path so you know what your best options might be.
When considering your options, think about whether you are getting a tax refund. If you can use your tax refund to pay off these debts in a few months, you might not end up spending a great deal on interest, causing these types of debts to be potentially less expensive than a tax advance.
Whatever you plan on doing with your tax refund, consider using professional software or services to maximize it.