The start of a new calendar also means the start of the income tax filing season. For those expecting an income tax refund, there might be better options than waiting for those funds. If you don’t want to wait for your income tax refund, there’s a solution known as an income tax refund loan.
Tax refund loans can serve as a lifeline for people who need immediate access to cash but are waiting for their tax refunds to be processed. Keep reading to learn more about getting these loans, the pros and cons and how they work.
What are tax refund loans?
A tax refund loan allows you to borrow against an expected tax refund. It’s also known by a few other names:
- Rapid refund.
- Refund advance.
- Refund anticipation loan.
- Tax anticipation loan.
In most cases, these short-term loans are offered by tax preparers partnering with another financial entity to fund the loan until your actual IRS refund arrives. Depending on the type of loan and who’s offering it, you can receive funds from these loans in a few hours or days. You’ll have the option to receive the loan funds on a prepaid debit card or via direct deposit into a bank account.
How do tax refund loans work?
You can get a tax refund loan by using the products and services of professional tax preparation companies like TurboTax, H&R Block and others. Most preparers allow you to complete your income tax return online or in person, and choose the refund advance option for your refund.
Typically, your loan amount is based on the size of your federal refund, your tax information, and other factors. You may not receive the maximum loan amount if one of these factors doesn’t meet lender requirements.
Once your refund is accepted by the IRS, you can access all or a partial amount of your anticipated tax return in as little as a few hours to a few days. It’s important to know that this loan is not your actual IRS tax refund but rather a loan from a third party that you must repay until you receive your actual refund from the IRS. If, for some reason, your income tax refund is less than your loan amount, you’ll still owe the full amount of the loan.
Finally, you should know that these loans may carry fees and interest, which can reduce the amount of your income tax refund. However, many tax preparation services now offer these loans without interest or fees, but you should be prepared to pay charges related to preparing and filing your return.
How much is a tax refund loan?
The amount of your loan depends on a few factors. Each tax preparation service has a stated minimum and maximum loan amount. You probably won't be eligible for a tax refund loan if your anticipated refund is too low, like $100 or less.
Refund advances can range from $500 to $6,500. Tax preparation services and affiliated lenders may only give you part of your anticipated refund. For instance, you may only get 50% of your anticipated refund, depending on what the lender approves you for.
Who’s eligible for a tax refund loan?
Most tax preparation services will allow you to apply for an income tax refund as long as you meet basic requirements, which may include one or more of the following:
- Age 18 or over.
- Social Security number.
- Valid government-issued ID.
- Income reported on a Form W-2, 1099-R or Schedule C.
- Valid pay stubs for up to 90 days (in the case of loan requests before your W-2 is available).
The tax preparer and associated lender may also review your past tax returns or your credit history to approve you for a tax refund loan. There may be other requirements, such as opening a bank account to receive your loan funds and/or repay your loan. You may also receive your refund on a prepaid debit card. In both cases, make sure you understand any costs or fees associated with these financial products required for your tax refund loan.
When are tax refund loans available?
These loans can become available as early as December of the previous tax year and go through the end of the tax filing season, typically around April. For example, if you are expecting a refund in 2024 for the 2023 tax year, you could apply for a refund for the advance loan as soon as December 2023. These loans are sometimes called Holiday Advance loans because they’re available before the IRS starts accepting income tax filings in January. It’s worth noting that some lenders have holiday loans, but these do not refer to a tax refund loan — they are simply personal loans available ahead of the holiday season.
Most preparers start offering these loans when the IRS announces the first day they will accept filings, normally in late January. Even if you file after the deadline for 2024, you can request a tax refund loan if you don’t want to wait for the IRS to process your return and send your refund.
Here are some estimated timelines for receiving your refund once the IRS has received your return and started to process it:
- Refund advance: A few hours to a few days.
- IRS direct deposit: 21 days.
- IRS paper check: 28 days.
Tax refund loans pros & cons
Pros
- You can receive a part or all of your income tax refund money sooner.
- The application process typically doesn’t require a hard credit inquiry.
- You can use your refund to pay off debt or boost your savings account sooner.
Cons
- If your tax refund is less than you anticipated, you will still be responsible for paying the entire balance of the refund advance.
- There may be fees and interest associated with the loan.
Where to get tax refund loans
| TurboTax | H&R Block | Jackson Hewitt | |
|---|---|---|---|
Loan amounts | $250-$4,000 | $250-$3,500 | $250-$6,500 |
Time to fund | As soon as 30 seconds | Same day as the loan application | Direct deposit: 1-5 days |
Fees/Interest | None | None | None |
Many independent tax preparers can also provide tax refund loans. Inquire about this option before using their filing services to make sure it’s available.
Should you get a tax refund loan?
A tax refund loan could be a great way to get funds for an emergency. Most tax refund loans carry little or no fees and can be more economical than using credit cards, lines of credit or personal loans, which have high interest rates.
If you have a dire need for money and meet all the lender minimum requirements, this kind of loan can be helpful in an emergency, especially since many loans these days are fee-free. Note there are risks with these loans, such as getting a lower refund than anticipated or having to pay interest or fees on them.
Tax refund loan alternatives
Personal loan
A personal loan is an unsecured loan that typically allows you to borrow between $500 and $100,000 for various needs like home improvement projects, medical bills, vacations, weddings and more. Approval odds for these loans depend mainly upon your income and credit profile. This option is ideal for people who have good to excellent credit with a low debt-to-income (DTI) ratio. If this isn’t the case for you, approval could be challenging.
Adjust your withholding
Instead of getting a large refund when you file your return, you can effectively get that money spread throughout the year. How? You can adjust your withholding on your W-4 so that fewer taxes are taken out of your paychecks, which means more in your pocket every pay period.
Be mindful that you can end up owing taxes if you don’t pay enough taxes on your income throughout the year. If you’re not sure how to adjust your withholding, the IRS website has many resources and calculators to help you adjust your tax withholding for your personal finance objectives.
Emergency fund
Having an emergency fund savings account is a great way to prepare for unforeseen financial needs. This account acts as a safety net for unexpected costs, hopefully eliminating the need for immediate cash from a tax refund loan.
Frequently asked questions (FAQs)
Can I borrow money from my tax refund?
Technically, you are borrowing from a lender who uses your income tax refund as collateral for a loan. A tax preparer makes it easy to receive loan funds and repay the loan using your income tax refund and by working with an affiliated lender that underwrites the loan.
What is the early refund loan for 2024?
You can get early access to a part or all of your income tax refund check by applying for an income tax refund loan. You can access these loans through a tax preparation service.
Can I get a tax refund loan with bad credit?
Yes. Though there are no guarantees, it’s possible. Because your income tax return secures the loan, your credit score won’t be as important in the loan approval process. As long as you meet other lender requirements and the amount of your anticipated refund amount is sufficient, you should have good approval odds.
