Tax Refund Loans: How To Get an Advance for 2023
It’s tax time, when W-2s are in the mailbox and the smell of refund checks is in the air. If you need your refund check sooner rather than later or don’t want to wait for the IRS to process your return, you may be wondering, “Can I get a loan against my tax refund?”
The answer is maybe. If you qualify for a tax refund advance loan, you may be able to get up to half of your refund early or borrow the full amount of the refund to purchase a big-ticket item like a car. Understanding how these loans work can help you decide if it’s the right option for you.
Learn: 3 Ways Smart People Save Money When Filing Their Taxes
What Is a Tax Refund Advance Loan?
A tax refund advance loan is a short-term loan issued by banks and non-bank lenders. These loans are secured by the borrower’s anticipated tax refund. For that reason, the loan amount doesn’t exceed the amount of the refund.
How Do Tax Refund Advance Loans Work?
When a lender offers a tax refund advance loan, it agrees to give you a loan worth all or part of your tax refund. Since the loan is secured by the tax refund, the lender expects you to file your taxes using its tax preparation software or services to ensure the form is completed correctly. This lets the lender verify the amount of your refund and ensure that the IRS accepts your return.
As soon as the IRS accepts your return, the lender gives you the advance. This may be through direct deposit in a specific type of checking or savings account, a prepaid debit card or a down payment on a car or piece of furniture. When the IRS issues your refund, the lender accepts the refund as payment for the loan and gives you the balance due to you, minus fees and interest.
Who Can Get a Tax Refund Advance Loan?
Eligibility requirements can vary depending on the lender, and most taxpayers who expect to receive a tax refund can qualify for a refund advance loan regardless of their credit score.
For example, Turbo Tax offers its Refund Advance program to taxpayers who are at least 18 years old, have a Social Security number and file using certain forms. It’s not available to individuals who use a post office or prison address.
Where To Get a Tax Refund Advance Loan
The most common place to get a tax refund advance loan is through a tax preparation company. National companies like H&R Block, Jackson Hewitt, Liberty Tax and TurboTax offer refund advance loans.
You’ll also find smaller tax preparers and lenders that specialize in these loans. A number of car dealerships give customers the option to apply for their tax refund as a down payment.
Pros and Cons of Tax Refund Advance Loans
Refund advance loans are convenient, but they’re not right for everyone.
- Some refund advance loans are interest-free.
- Tax preparation fees are deducted from the refund.
- These loans typically do not require a hard credit pull that can affect your credit score.
- You can receive your tax refund in minutes, depending on the program terms set by the lender.
- Some lenders charge fees and interest.
- You have to file your tax return early.
- You must use the lender’s tax preparation software or service.
- You have to pay for the tax preparation even if you don’t get a refund.
Are Tax Refund Loans Worth It?
If you need your tax refund immediately and can’t wait a few weeks for the IRS to process your return, a tax refund loan may be worth it. If your preferred tax preparation company offers this type of program, check it out. You’d spend the money with them anyway, so you may as well get an early refund as a bonus. But before you agree to the loan, make sure you know how much it will cost you. Look for a program with a 0% APR loan and a minimal tax preparation fee.
When It’s Not Worth It
However, if you anticipate a small tax refund or have to pay a substantial fee for the services, an advance may not be worth the cost. For example, the company may charge you $500 to file your tax return and will deduct the fee from your $1,500 refund. This leaves you with $1,000 even if the company doesn’t charge you interest. You’re giving up one-third of your refund for the convenience of having your money sooner rather than later.
The IRS processes returns and sends refunds within four weeks for 90 percent of filers. If you’re willing to wait, you’ll have more money in your pocket.
Similarly, if you have a type of tax software you like to use or want to work with a specific tax preparer, you may want to skip the refund advance loan. You’ll have the flexibility you want and may not be missing out on anything.
Bottom line? Make sure you really need the cash before pursuing a tax refund advance loan.
FAQHere are the answers to some common questions about tax refunds.
- Can I get a refund advance if I already filed?
- If you've already filed your taxes, it's too late to qualify for a refund advance loan.
- Most lenders require you to use their tax preparation service or software to qualify for a refund advance loan. Since the loan is secured by the expected refund amount, the lender wants to know that your taxes were filed correctly and accepted by the IRS before dispersing the loan.
- How can I get my tax refund ASAP?
- The fastest way to get your tax refund is through a refund advance loan. Depending on the loan provider you choose, you can receive all or part of your refund minutes after the IRS accepts the return.
- However, 9 out of 10 taxpayers receive their refund less than a month after filing when they file electronically and set up a direct deposit, so the terms of a refund advance loan may not be worth it. Simply filing early is the next best option to receive your tax refund quickly.
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- FINRA. "5 Things You Should Know About Tax Refund Loans."
- TurboTax. "Refund Advance."
- H&R Block. "Refund Advance loan."
- McGrath Auto Group. "Using Your Tax Refund for a Down Payment on Your Car Loan."
- Get It Back Campaign. 2022. "What You Need to Know about Advance Loans."
- Internal Revenue Service. 2023. "Tax Season Refund Frequently Asked Questions."
- Tax Advance. "Tax Advance Instant Tax Loan."