All of us salaried individuals pay taxes to the government and sometimes depending on our saving and investment planning we may get a tax refund on this. You may not be aware that these refunds can be used to secure a loan for yourself. Sometimes in your life, you may encounter a sudden need for quick cash before your monthly paycheck. If you file your taxes directly with the IRS it will take the normal time which is usually a few months. Another option available to users for a specific time in the year is a loan against your tax refund.
Let’s understand how tax refund cash advances work. These are given out by companies who handle taxes for individuals and hence give out small loans to them by considering the tax refund as security.
There are two conditions for you to be eligible for a tax refund cash advance
Firstly you must be an individual paying taxes to obtain this. Based on your yearly salary and taxes that may have already been paid or need to be paid and your investments you must be eligible for a refund on your tax. You must also be aware of the refund you will be getting, though the lender may help you find this information.
Secondly, you must have your taxes prepared in person. That means the company you chose to get this loan will also be the company that will prepare your taxes and helps you with claiming the refund. So the lender will help you file the refund and then extract the loan amount from there itself.
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This loan does not have a cost involving the rate of interest or financing fee. However, the lender is a tax consultant and charges a fee to fill your taxes and do all the necessary paperwork. This charge can be anywhere from $50 to $500. Considering this a consumer must calculate whether the refund against which they are borrowing is worth paying the price to prepare the taxes. If you are only going to get $600 as the refund, then paying $100 to get this loan may seem a bit pricey and you should consider alternatives. However, if the amount you are going to receive as a refund is higher and you can borrow above $1000 against that then $100 for that amount is considerably less.
Steps to get a Tax refund cash advance:
- Find an organization that offers tax preparation services and also loans on these services.
- Compare these organizations based on how much they charge for tax preparation.
- Choose an organization based on their fee and how much refund you expect to get against how much you intend to borrow.
- Meet with the selected company’s representative and check if you meet their eligibility criteria.
- Fill out an application with all the required details. Many companies offer the option to fill out an online application.
- Wait for approval and get your loan as soon as 1 day.
Just like payday loans, tax refund loans also have a very short turnaround time. However, one major drawback is that as they are connected with tax preparations they are usually available only in a certain period of time. This time is usually in the last quarter of the financial year.
If you need a quick cash advance in another time of the year, check out other options like regular loans, payday loans or simply ask family or friends.