Every year, millions of Americans will file their income taxes in anticipation of getting a refund check. However, waiting for that money to arrive can be frustrating, especially if you’re in need of it now. This is why several tax preparation services are now offering what’s called a tax refund advance. Let’s dive deeper into what a tax refund advance is and the steps you can take to apply for one.
What is a tax refund advance?
A tax refund advance is a short-term loan that allows filers to receive their anticipated tax refund early. A tax preparation company will issue the loan after the applicant meets their qualifications, and the balance will be deducted from their official refund once received.
In many cases, getting approved for a tax refund advance is quick, and applicants may get the money they need within 24 hours.
How can I get a tax refund advance?
If you’d like to apply for a tax refund advance, here are the steps you can take:
- Wait until December – Generally, tax services won’t start offering these advances until at least December of the year before their taxes are due.
- Find a tax preparer that offers tax refund advances – While many of the larger, well-known tax preparation services offer tax refund advances, not all of them will. So, it pays to do a little research ahead of time so that you’ll know which ones provide this option.
- Compare rates and fees – Each tax preparation service will have different terms for its tax refund advances. Some might offer 0% interest, while others may waive fees. It can be smart to compare the terms side by side and calculate how much you’ll be paying overall for this advance.
- Apply for the advance – Once you’re satisfied with a loan offer, fill out the application. The tax service will likely check your credit score and ask questions to gauge how much your anticipated refund will be.
- Pay back the loan – After the advance is released, remember that the balance plus any applicable fees and interest will be deducted from your refund once the IRS releases it.
Is a tax refund advance right for me?
While getting your money early and paying 0% interest can sound like an incredible deal, it’s important to keep perspective on how much this short-term loan is actually costing you. For instance, if you have to pay $100 to have your taxes professionally prepared just so that you can get an advance of $1,000 that you were going to receive just a month later, then that would effectively be an APR of 133%. Looking at the loan in this way might cause you to think about it differently.
But if you already get your taxes prepared by a servicer anyways, then this cost might be moot. So, it’s wise for applicants to calculate the costs and see how much extra expense it adds.
The bottom line
Tax refund advances offer borrowers the opportunity to get their refund several months before the IRS sends them their funds. Even though these loans may seem low-cost, applicants should still consider the cost of the tax preparation and see how much extra expense it involves. This can help them decide whether a tax refund advance is the right choice for their financial situation and needs.
Notice: Information provided in this article is for information purposes only. Consult your financial advisor about your financial circumstances.