A tax refund advance loan is exactly that—a short-term loan against your income tax refund that you get before your refund is actually processed by the IRS. It isn’t necessarily a loan of your full refund amount though. You usually borrow only a portion of your total refund.
These loans are also called instant refunds, tax refund cash advance emergency loans, or simply a tax refund advance or just refund advance. A similar loan, called a refund anticipation loan (RAL), was common before 2012, when regulatory changes led to its demise. However, you’ll likely still see these loans called RALs.
With a refund advance, you borrow your own money, which is paid back when Uncle Sam issues your refund. Taxpayers like refund advances because it gives them access to money sometimes within a day of applying and or a day of the IRS accepting a taxpayer’s tax return. They can be particular useful if you need cash quickly.
Where Can I Get a Tax Refund Advance Loan?
A tax refund advance loan is typically available when a tax preparation service, such as Jackson Hewitt, H&R Block or Liberty Tax, prepares and files your taxes. The tax preparer does your tax return and loans you a portion of your refund in advance. You usually have your money in 24 hours. The IRS then sends your actual refund to the preparer via a bank account set up in your name. Your loan is repaid from the full refund and the rest of the refund is returned to you. There’s no added work or paperwork on your part.
Beware! There are services that offer a tax advance loan without preparing your taxes or requiring a copy of your tax return. These services make you a loan based on your W-2 and a guess at what your refund might be. Research these offers carefully and be confident in how much of a return you’ll receive before choosing this path.
The advantage of having your taxes done by a tax preparer who makes the loan, is you know exactly how much your refund will be before taking the money. You’re not then stuck with a loan that is higher than your actual refund, which becomes a high-interest loan and financial burden for you.
What Does a Refund Advance Cost?
Most preparation services offer the option of a no fee refund advance at 0% APR up to certain loan amounts. You pay nothing extra—no interest and no fee or finance charge—to borrow money in advance against your refund. You do pay the preparation service to prepare your taxes, but you pay no added cost for your refund advance loan.
Some services offer different loan options and/or higher loan amounts that do require a fee and interest charges. Some charge high interest rates on refund advances beyond a certain dollar amount or percentage. Others charge both an interest rate and a finance charge, which can result in your paying money to get your refund early. For example, in 2017, Liberty Tax charged 35.77% interest for its Easy Advance loans of $2,500 along with a $63.70 finance charge.1
How Much I Can Get?
Each tax preparation service offers different refund advance amounts. Here’s a breakdown of the most popular no fee advance refund loans that offer 0% APR. Note that some preparers listed here also offer other refund advances loans with different maximum loan amounts, interest rates and availability dates.
|Preparer and Loan||Refund Advance Loan Amounts||Interest Rate||Loan Fund Availability||Date Available|
|Jackson Hewitt No Fee Refund Advance||$200, $500, $750, $1,000, $1,500, or $3,500||0% APR||American Express Serve® Prepaid Card or direct deposit||1/2/2019 thru 2/24/2019|
|Jackson Hewitt Early Refund Advance (can be combined with the No Fee Refund Advance)||$200–$400||0% APR||American Express Serve® Prepaid Card or direct deposit||12/19/2018|
|H&R Block Refund Advance||$500, $700,$1,250 or $3,000||0% APR||Prepaid Mastercard® or fee-based refund transfer account||1/4/2019|
|Liberty Tax Easy Advance||$500, $800, or $1,300, $2,500, or $3,250||0%||Prepaid card or direct deposit||1/2/2019 thru 2/28/2019|
|TaxSlayer RefundNOW||$500 or $1,000||0%||American Express Serve® Prepaid Card or Direct Deposit||Once the IRS has accepted your return|
According to the IRS, the average refund in 2017 was $2,782. With most services, you can only get a portion of your full refund in advance. If your tax preparer offers a refund advance of 75% of your refund, and you get the average $2,782 refund, you’ll only qualify for a loan of $1,000, $1,250, $1,300 or $1,500 depending on which tax preparer and loan option you choose. H&R Block requires you receive at least a $1,000 income tax refund in order to get their refund advance loan. For a higher loan amount, you’ll need a higher refund. For example, to obtain a Liberty Tax Easy Advance loan of $3,250 in 2017, you needed a total refund of at least $5,095.
Who Can Get a Loan?
Qualifying for a refund advance loan is pretty easy. Qualification is determined by the lender. Some lenders do a soft credit check of the applicant’s credit. The lender looks at the amount of your expected refund if you prequalify, or your actual refund if your income tax return is complete. The lender also verifies your identity and applies the standard underwriting criteria used for loans. Both Jackson Hewitt and H&R Block let you prequalify online. Unlike more traditional loans, refund advance loans don’t normally require that you have a credit history.
How Do Refund Advances Work?
In return for preparing your taxes, the tax preparation service loans you the money thru a third-party bank. Loan fund options vary among tax preparers and include a prepaid card, paper check and direct deposit. Some preparers may offer a refund transfer account, which is a bank account in your name.
If your total refund is more than the amount of your refund advance loan, when the IRS sends the full refund amount, the preparer keeps the amount of your loan and gives you the difference on your prepaid card or as a direct deposit. Most preparers will take the cost of preparing your taxes out of the refund advance amount. So the actual amount you receive will be the loan minus the cost of preparing your taxes.
Funds are typically available on a prepaid card within 24 hours of filing your taxes. For those who chose direct deposit, funds can take one to five business days to be available in your account.
According to the IRS 90% of returns done using electronic filing, called efiling, are processed in three weeks. Paper returns that are mailed in take from six to eight weeks. The sooner you file, of course, the faster you’re likely to get your refund. So, a refund advance loan can net you some money in-hand sooner than later. If you want to use a preparation service anyway, and you ensure the your refund advance loan has a 0% APR and no fee, you can come out ahead financially.
Pros and Cons of Refund Advance Loans
A search for information on tax refund advance loans reveals a lot of different—and often conflicting—information and opinions. It’s important to know that these loans have changed in recent years. Historically, the loans came with high fees and interest charges. Loans were also granted against what the taxpayer thought his/her refund might be. This left some people with a loan for more than the refund amount and without a ready way to repay the loan.
With newer no-fee loans with 0% APR, the cons of these loans have largely been eliminated. But, if you pick an option that includes interest or a fee, be sure you’re prepared to give up money in exchange for access to some funds sooner than later.
Pros of an Instant Refund
- A refund advance loan gets you access to money faster. That may only be three weeks faster, but if you need money now, you can get it.
- A no-fee 0% APR refund advance ensures you won’t pay anything beyond the cost of tax preparation for your loan.
- If you want or need a tax preparer’s help preparing your taxes, you can get your refund advance as part of the same process and you’ll know exactly how much of a refund you have to take a loan against.
- Using a tax preparer can help ensure you get the largest refund possible.
- Using a preparer can let you use your refund to pay for your tax preparation fees, so you don’t have to make a separate payment.
- Getting a refund advance won’t affect your credit score. Most companies that offer refund advance loans don’t even check your credit score before granting you a loan.
Cons of an Instant Refund
- You can’t get a loan for your full refund. You can get a loan of a portion of your refund, typically a set dollar amount. For example, H&R Block offers refund advances of $500, $750, $1,250 and $3,000. If you want a $600 loan, too bad. You often have to apply or prequalify for the loan before finding out how much of a loan you can get.
- Your total income tax refund has to be a higher dollar amount than your loan. For example, to get a $3,250 refund advance loan from Liberty Tax, your refund has to be at least $5,095.
- If your return is complicated, the cost of using a tax preparer may be more than the amount of your refund loan. For instance if you quality for a $200 refund advance and the cost of preparing your tax return is $250, you won’t benefit from or be able to take advantage of one of these loans.
- If your return is simple, you may be better off preparing it yourself, file for free, and wait three or so weeks to get your money.
- You run a risk if you get a loan against an anticipated refund amount—calculated before your return is complete—or solely based on your W-2, because your actual refund may be lower than you plan on. This can leave you paying interest at an APR of 35% or more. Do your homework and ensure you get a no-fee 0% APR advance.
- Some advance refund loans may charge added costs if your refund is late. Be sure and pick a loan provider who won’t charge extra if Uncle Sam is late with your refund.
- The IRS isn’t accepting returns until January 29, 2019, so the soonest you can get a refund advance from most services will be a January 30, 2019. Others will give you the loan as soon as their refund advance service is open for the tax season.
- There’s a chance the IRS might deny your return. Ask the refund advance service what happens if your income tax return is denied. Your chances of denial will be lower if you use a preparer, but if you don’t, you may be taking a risk if you have a loan and then your return is denied.
A refund advance loan can be a great way to get some fast cash. Do your homework though and know what you’re getting into and what the terms and consequences are before you commit to one this tax season.