Can you take out a loan against your tax refund?

If you’re strapped for cash you can get advance on your income tax refund, but it might cost you.

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Elissa SuhSenior Editor & Disability Insurance ExpertElissa Suh is a disability insurance expert and a former senior editor at Policygenius, where she also covered wills, trusts, and advance planning. Her work has appeared in MarketWatch, CNBC, PBS, Inverse, The Philadelphia Inquirer, and more.

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Depending on how you filed, it can take as long as three weeks to receive your tax refund. But if that's not fast enough and you find yourself constantly refreshing the IRS’s “Where Is My Refund?” page — you may be wondering if you can get your money faster. In fact you can, by getting a loan against your income tax refund.

Also known as a refund advance loan, this short-term loan is based on your tax refund and deducted directly from it. While a refund advance can potentially get you money sooner, there are costs and minor drawbacks that might not be worth it depending on your situation.

What is a refund advance loan?

Third-parties, not the IRS, provide refund loans and set the interest rates and fees for them. Officially called a refund anticipation loan (RAL), RALs in their original iterations had high rates and fees — over 200% APR — and as such, most major banks stopped offering them. Borrowers also ran the risk of getting a loan for more than the actual refund amount.

But today’s refund loans typically only let you borrow a set amount based on your total refund. Sometimes called refund anticipation checks (RACs), these newer products let you access your refund in as little as a few minutes after the IRS accepts your return, often with no interest and no fees. Keep in mind that the money you receive is not actually your refund, but a loan that is conveniently and directly repaid from your refund once it’s been processed by the IRS.

How do I get a loan against my tax refund?

Tax refund advances are available at tax preparation companies like H&R Block or Liberty Tax Service, and even e-filing companies like TurboTax or TaxSlayer. In order to secure a tax refund loan, you must use their service to file your taxes, usually by a mid-to-late February deadline. The companies themselves don’t issue the loan, but a partnered financial institution does. For example, H&R Block works with Axos Bank, Jackson Hewitt with MetaBank, and Liberty with Republic Bank & Trust company. To make sure you qualify, the bank will run a soft-pull of your credit card history that will not affect your credit score.

Learn more about filing taxes.

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How much can I borrow?

To be eligible for a tax refund advance, you must have minimum refund amount typically around $1000. The loan amount itself comes in smaller fixed increments starting around $200 to $500 up to the full amount. But some companies, like TurboTax, will only let you access a portion of your refund. For example, if you’re getting a $1,284 refund, you can only borrow $250.

How much does a refund advance loan cost?

Short-term loans like a refund advance can come with steep interest rates. One of Jackson Hewitt’s two refund loan products has a 35% APR, which means over a 24 day term, a $1000 loan would have a $24 charge.

However, most tax preparation companies offer an interest-free loan. They’ll instead charge you for their services — preparing your taxes. Filing with H&R Block starts at $59, but gets more costly based on the complexity of your tax return.

Additionally, there may be fees depending on your chosen method of disbursement. Prepaid cards may have out-of-network ATM fees, and bank transfers or direct deposits may incur an extra charge. If you chose a prepaid card, the remainder of your refund will likely be issued onto it as well.

How long does a refund advance take?

How long you wait for your tax refund advance depends on how you choose to be paid. A prepaid card can take a few minutes to 24 hours, while direct deposit can take up to five days. If you chose an e-filing service, you might receive a temporary card for online purchases, but you would still have to wait five to 10 business days for the physical card in the mail.

Is a tax refund loan worth it?

A refund advance can be appealing for anyone who needs money quickly. Maybe you need to pay your student loan or incurred an unexpected expense last month. Maybe you claim the Earned Income Tax Credit or American Opportunity Credit, and already anticipate a delayed return. (Starting in 2016, the IRS began delaying refunds for filers of these credits until February 15.)

However, depending on how you choose to be paid, the time difference between getting a refund loan and waiting for the actual refund in full may not be as long as you thought. You should also consider the cost of services, which could take a big chunk out of your refund. On the other hand, if you were already planning to pay for a tax preparer, then a refund loan might make more sense.

There’s also the possibility that the tax preparation service misfiled your taxes, resulting in you owing money. Most companies will not hold you responsible for the difference between the estimated refund and actual refund because of their mistake, but it’s important to read the fine print and ask ahead of time to make sure.

Alternatives to tax refund loans

If you’re in a tight spot, there are some alternatives to getting a tax loan refund:

  • File early and electronically. Choosing to e-file your return and receive your refund through direct deposit can take as little as one to two weeks.

  • Lower your tax refund. While it might feel nice to get a big refund come Tax Day, it means you could have had a larger paycheck during the year instead. You can update your W-4 withholdings to maximize your savings.

  • Take out a personal loan. If you’re strapped for cash, some lenders may offer small loans for low interest rates.

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