If you’re expecting a refund, income tax filing season can’t come soon enough. You’ve most likely planned out how you will spend refund and are organized enough to put this season behind you. You may have heard of early tax refund anticipation loans. Those of you considering one should read on before you choose.
1. What Is An Income Tax Refund Loan?
An income tax refund loan is an advance that is paid from a tax preparation service in the place of waiting for your refund check to arrive. This type of loan may be given as early as the same day your income tax return is approved by the IRS. It is beneficial as the check can take approximately three weeks to arrive. In 2019 the wait time may be longer thanks to the government shutdown. These loans can be paid for by taking a portion out of your refund. Income tax refund loans are often given out as a check, prepaid debit card, or direct deposit to the account of your choice. Instead of paying the loan back yourself, your tax preparer gets your check.
2. Know How Big Your Tax Refund Is
Those of you who made about the same as you did last year can expect a similar refund this year. There’s no point in getting an income tax refund loan if you’re not expecting anything significant, or worse yet have to pay the IRS. Before you move on, use a tax refund calculator as found here to estimate how much you are getting. This calculator from efile can estimate your simple income tax refund by answering a few questions on filing status, dependents, income, deductions, taxes, credits, etc.
3. What if I Have Bad Credit?
This can be tricky for those of you with credit scores on the lower end. It can make timid loan givers shy away. However, an income tax refund loan is different because you are not required to pay it back yourself. The government usually pays it back for you when they issue your check. Some tax preparers will issue a loan without the guarantee of getting your refund check, some will refuse a loan, some will offer you worse terms if you have bad credit. It is important to know your credit score so you may ask your tax preparer before you move ahead with a loan.
4. What Does an Income Tax Refund Loan Cost?
The terms differ with each tax preparation firm, state, etc. However, you should be aware of any and all costs associated with these types of loans. These include but are not limited to:
- Upfront fee for the loan.
- A rate of interest as high as 36%. For comparison, credit cards charge around 19% APR.
- A minimum monthly payment if your refund check is issued to you.
- Late payment fees.
- Returned payment fees.
5. Is the Tax Refund Loan Worth It?
Again, the short answer is: it depends. It may not be worth it if you’re receiving a small refund and don’t need it right away. Even if you do need a sum right away, there may be better alternatives such as a personal loan. They can offer terms as low as 5% APR and loan as little as $1,000. If you want to receive your refund as soon as possible we recommend you:
- File as early as possible.
- Refunds that have claimed the Earned Income Tax Credit and/or Additional Child Tax Credit will not be processed until February 15th.
- File your return electronically. It’s faster.
- Request a direct deposit. It’s also faster.
Income Tax Refunds in Houston
If your Houston-based business or family needs help preparing your 2019 income tax return, contact us.
