The Tax Refund Loan Question
UPDATED DECEMBER 2017 – Tax refund loan products are making a come back. A variety of vendors offer different perks related to your tax refund. Many of the major tax preparation services are offering new products for 2018 tax refund loans. Automobile dealerships and furniture stores are also common places that offer you benefits if you file your taxes through their services. The basic idea is they offer to put your refund towards the purchase of a product. Quite simply, a lender or tax preparation company walks you through filing your taxes and offers to pay you on the spot for the refund that you are supposed to receive. Many taxpayers may be looking to these type of tax refund advance products due to the delay of refunds with Earned Income Tax Credits or Additional Child Tax Credits until February 15th due to the PATH Act. We wrote more about the tax refund delay here Some Tax Refunds will be Delayed when you File Early.
The New Tax Refund Loan
Tax Refund Anticipation Loans (RAL) were popular but became essentially non-existent in 2012 when regulatory crackdowns forced the products pretty much out of the market because they came at a high cost to the consumer. But the resurgence of a similar product called a tax refund loan is now on the market. H&R Block, Liberty Tax and Jackson Hewitt have offered tax refund loan products in 2018 in amounts of up to $3200. If approved, some offer money the same day you apply. The amount of the advance will be deducted from your tax refund and reduce the amount that is paid directly to the taxpayer. Our research found that a TurboTax refund loan is not available. But take a look at details of the offers below. Should you get a tax refund loan? Make sure you keep reading!
You can prequalify now for this Refund Advance loan without any impact to your credit score. The refund loan from H&R Block starts on January 5th and is advertised to loan up to $3000 with 0% interest. When you file your taxes with H&R Block you can apply for the loan and get it as early as the day you file. If approved, this loan is loaded to an Emerald Prepaid MasterCard.
The refund loan applications at H&R Block opened in November. You can make an appointment online now without a W2 to apply. A paycheck stub, proof of ID and address is needed to apply. The loan is also disbursed to an Emerald Prepaid MasterCard. You can use the credit line year round if you pay your loan off by February 15th each year. There is an annual fee and a pretty hefty interest rate. Other fees apply, so make sure you read the fine print. This loan from H&R Block is advertised to give you up to $1000.
This loan becomes available on January 3rd and is advertised with no fees or interest. An Easy Advance (EA) is a $500-$1300 loan secured by your tax refund and is offered by Republic Bank & Trust Company, member FDIC, to eligible taxpayers. These refund advance loans are disbursed as a check printed in the tax office, loaded onto a NetSpend® Liberty Tax® Prepaid MasterCard® or direct deposited into a bank account. Valid at participating locations.
You can also prequalify now for this refund advance loan from Jackson Hewitt. The Express Refund Advance is advertised as no fee tax refund loan. No late fees. No document fees, no origination fees, and no interest charges. The Express Refund Advance loan sizes can be $100, $200, $500, $750, $1,000, and $3,200 for qualifying clients. A portion of the loan ($200-$400) can be accessed by qualifying clients as early as December 18 with a pay stub or other income verification in anticipation of the holidays. This refund loan is disbursed to an American Express Serve card.
Why Tax Refund Loans Aren’t Always a Great Option
They may sound attractive. And, they can be an option if you are in such need that you are contemplating a loan. However it is not a great choice unless you are in some dire need. One problem is a lack of regulation. There aren’t many hard and fast rules surrounding the practice that are well-regulated from the top. Each state has their own regulations that can vary drastically. Consumer watchdog groups view some of these loans as predatory because they typically target low income, low resource consumers who often look forward to that lump sum. Refund loans also provide incentive for dishonesty. A tax refund loan is given based on the amount of the consumer’s tax refund. Thus, it creates a motive for the lender to fudge details and try to stretch your refund for every dollar. That can easily toe the line of fraud and may put you on the radar for an audit if the lender acts unethically.
A Tax Refund Loan Could Backfire
You may find yourself in debt to the lender if there are garnishments against your tax refund. Unpaid tickets, child support arrears, student loans or certain other types of debt can be offset and reduce the amount of tax refund you are expecting. The money that they lend the consumer is given with the expectation of receiving a certain amount from the Internal Revenue Service. Thus, you may end up needing to pay part of that loan back with an extremely high interest rate attached. In some states, it can be anywhere from 30-50% APR in addition to fees.
So, should you get a refund loan?
The short answer is probably not. It’s just not a quality, meaningful service where the consumer has appropriate protections to safeguard their interests. The costs and potential problems that may arise because of a tax refund loan are simply not worth the risk. If you are in such trouble where you are contemplating taking out a loan, be certain to diligently research the company you are going to borrow from first so you don’t end up in debt to them.