Understanding Tax Refund Advance Loans: A Comprehensive Guide

If your federal tax refund just can’t arrive soon enough, a tax refund advance loan might be the solution you need. Many tax preparation companies offer no-cost refund advances as part of their package of services. With a tax refund loan, you get immediate access to your funds and then pay your loan back automatically when your refund lands. In this blog, we will explore what a tax refund advance loan is, how to get one, the costs involved, and whether it’s a good idea for you.

What Is a Tax Refund Advance Loan?

A tax refund advance loan provides you with a portion of your federal tax refund when you e-file your tax return with a tax prep provider that offers refund loans. These loans are generally fee-free with a 0% annual percentage rate (APR) and can often be funded on the same day your e-filed return is accepted by the IRS.

Tax preparation firms like TurboTax, H&R Block, and Jackson Hewitt offer tax refund advances to select clients. These companies partner with banks to fund and underwrite these loans. The bank reviews your tax return and your credit, typically through a soft credit inquiry that won’t affect your credit score. Although it’s possible to be declined for a refund advance, the approval rate is high.

How to Get a Tax Refund Loan

Start by finding a tax preparation service that offers refund advance loans. You may want to compare a few different options to make sure you’re getting the loan that best fits your needs. Here’s how refund advance loans and their features stack up at three popular tax preparation firms:

H&R Block

• You can request a refund advance loan when you e-file your taxes with one of H&R Block’s tax pros.
• Meet with a tax pro in person, through a combination of in-office and remote filing, or using digital document drop-off.
• Apply for a refund advance of $250, $500, $750, $1,250, or $3,500, depending on the size of your refund.
• Pay $0 in loan fees and 0% APR on your loan.
• Refund advance has no impact on your credit score.
• Choose between the Spruce mobile banking app or an Emerald prepaid debit card to receive loan funds.

Jackson Hewitt

• Tax refund advances are available at most Jackson Hewitt locations nationwide.
• Apply for a refund advance of $250, $500, $750, $1,000, $1,500, $2,500, $3,500, $4,500, or $6,500, based on your qualifying estimated refund.
• Pay $0 in loan fees and 0% APR on your loan.
• Refund advance has no impact on your credit score.
• Receive your refund advance on a prepaid Serve American Express card or have funds direct deposited to your bank account.
• Access your funds the same day if you choose a prepaid card. Direct deposit takes one to five days to complete.

TurboTax

• Apply for a tax refund advance when you’re ready to e-file your return using TurboTax.
• Apply for a loan of up to 50% of your federal tax refund.
• Loans come in the following increments: $250, $500, $750, $1,000, $1,500, $2,000, $2,500, $3,000, $3,500, and $4,000.
• Pay $0 in loan fees and 0% APR on your loan.
• Refund advance does not impact your credit score.
• Receive your advance minutes after the IRS accepts your e-filed return in many cases.
• You must open (or have) a Credit Karma Money checking account to receive the funds.
• Refund advance loans are available through February 29 (or until funds run out, if that happens sooner) for the 2024 tax season.

How Much Does a Tax Refund Advance Cost?

Although refund advance loans are typically zero interest and fee-free, there are a few costs and limitations that may be associated with your loan. Here are a few to think about:

• Tax preparation fees: If you were planning to do your own taxes for free, paying a tax preparation company so you can apply for a refund advance is an added expense. Companies may also require you to use higher-end services (versus free or low-cost basic online services) to be eligible for the loan.
• Prepaid card fees: A prepaid card gives you immediate access to your funds, but these often come with minor fees for usage. For example, you might pay an ATM fee to use your card to get cash.
• Unpaid balances: In the event that your refund doesn’t cover your outstanding loan, you’ll have an outstanding balance that may be due and payable. This could happen if the IRS denies one of your deductions, for instance, and reduces the size of your refund.

Is It a Good Idea to Get a Tax Refund Loan?

Consider the pros and cons of getting a tax refund advance loan:

Pros

• A tax refund advance is a low-cost way to get a portion of your federal tax refund money fast.
• You’ll pay 0% interest and $0 in fees. As a caveat, though, always read the fine print to verify your loan costs and check for minor charges (such as prepaid card fees) that may apply.
• Receive and repay your money with almost no effort. Apply when you file your taxes; pay your loan back automatically when your refund is paid. Most loans offer same-day funding.
• Avoid IRS delays. Although the IRS issues most refunds within three weeks of filing, delays are always possible, especially if you’ve claimed the earned income tax credit or the additional child tax credit.

Cons

• You may not qualify for the loan. Although tax refund advances have a high rate of approval, you aren’t guaranteed to get the loan. If you paid to work with a tax pro because you wanted a refund advance, you may be both disappointed and poorer by the amount you paid for tax preparation.
• You may end up with an account you don’t want. If you open a checking account to receive loan funds, the account may not go away when your refund is spent. If you don’t want to keep the account open, you’ll need to actively close it—after your refund is issued and your loan is paid off.
• You run the risk of overspending. It’s possible your actual refund will be smaller than expected. If this happens, you may need to repay the difference between what you received and what the IRS paid you. If you’ve already spent the funds, you may go into actual debt to pay off your loan.

Can I Get a Loan on My Tax Refund if I Already Filed?

Refund advance programs typically require you to apply for your loan when you e-file your taxes with the help of the tax prep company. If you’ve already filed your return with the IRS, you’re no longer eligible to meet these requirements.

For future reference, choose a tax preparation company early in the tax season if you want to get a refund advance. These loans are generally available in January and February only, so it’s important to get started early.

If you’re filing your own return (or filing with tax prep after the refund advance deadline has passed), e-file your tax return and choose direct deposit for the fastest results. The IRS issues more than nine out of 10 refunds in less than 21 days. When you e-file and use direct deposit, you bypass mail times and avoid potential problems with lost or damaged mail.

The Bottom Line

A tax refund advance loan can be an easy low- or no-cost option that lets you start using your tax refund sooner. If you were already planning to pay for tax prep, there’s little downside to getting a refund advance. Just make sure your timing is right: If you wait too late into the tax season or file your return without requesting an advance, you may miss the opportunity until next year.

The fastest and safest way to receive your tax refund is through IRS direct deposit to a bank account. If you don’t have a checking account, consider the Experian Smart Money™ Digital Checking Account & Debit Card, which can help you build credit without debt by linking to Experian Boost®ø. Start building credit with eligible bill payments after three months of payments. See terms at experian.com/legal.

Using your tax refund to pay down debt is one way to make the most of your money. Check your Experian credit report to help figure out where additional debt payments might be most helpful. If you’re looking for alternatives to a refund advance, you might consider a personal loan or a credit card with a promotional 0% APR.

For any mortgage service needs, call O1ne Mortgage at 213-732-3074. We are here to help you with all your mortgage needs and ensure you get the best service possible.