While we all love the idea of a big tax refund in the spring, sometimes you need those funds sooner. That’s where a tax refund loan comes in. But while these loans can get you early access to funds, they can be expensive and unnecessary.
“Consumers should carefully consider the advantages of having quicker access to the money versus the costs incurred to obtain the loan,” says April Walker, lead manager for tax practice and ethics with the American Institute of Certified Public Accountants.
Read below to learn how to get a tax refund loan, where to find one and if it’s the best option for you.
What Is a Tax Refund Loan?
When you file your tax return, you may end up owing the government money or getting a refund from the government. If you are due a refund, you can usually get the funds within three weeks of filing your taxes if you e-file and choose to receive a direct deposit.
But taxpayers who need money quickly may be able to take out a tax refund loan, also known as a refund advance loan or a refund anticipation loan. This is a product that provides you with part of an expected tax refund faster than the IRS can send the money.
[Read: Best Personal Loans.]
Where Can You Get Tax Refund Loans?
You cannot get a tax refund loan from a bank directly. Instead, tax preparation companies often offer refund advance loans. Using one of these services could get you funds sooner than you’d get your tax refund, but make sure you understand the costs. Keep in mind that you may be on the hook for a tax preparation fee when you use one of these companies, and you will need to meet eligibility requirements.
Jackson Hewitt
Jackson Hewitt will offer two types of tax refund loans for the 2025 tax year at participating locations beginning Dec. 16, 2024. The Early Tax Refund Advance loan is designed to give you advance funds from your refund to help cover unexpected expenses during the holidays. When you apply for an Early Tax Refund Advance, you’ll also start an application for a No Fee Tax Refund Advance loan — which has no interest or fee — for when you come back to file your taxes.
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H&R Block
H&R Block will offer its Emerald Advance Loan throughout November and December 2024, and a no-interest Refund Advance Loan at participating offices beginning Jan. 3, 2025. You can apply by making an appointment to file your taxes with H&R Block either in office or remotely.
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TurboTax
TurboTax will offer its Refund Advance through lender First Century Bank from the time the IRS begins accepting tax returns through Feb. 28, 2025.
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[Read: Best 0% APR Credit Cards.]
How Do Tax Refund Advance Loans Work?
If your tax preparer offers refund advance loans, you can usually apply for one when you begin the tax filing process. The funds you receive in advance will be paid back to the lender, along with other charges, when the government sends your full refund. At that point you’ll receive whatever remains of your full refund after the advance is repaid.
Expect to receive only a percentage of your estimated refund as a loan. For example, if your anticipated refund is between $500 and $999, TurboTax will only lend you a maximum of 50% of the refund amount.
Most tax refund loans are available starting in December or January, says Robert Farrington, founder of The College Investor. This can let taxpayers get access to funds sooner than if they waited for the IRS.
Farrington says tax anticipation loans are generally geared toward taxpayers who are eligible for the earned income tax credit or the additional child tax credit. If you qualify for one of these two tax credits, you could expect to get your refund by Feb. 28 if you filed online, elected to get your refund via direct deposit and had no problems with your tax return.
What Are the Pros and Cons of Tax Refund Loans?
Pros
— You’ll have quick access to funds. If you need funds sooner than the IRS can get you your tax refund, a tax refund loan can help.
— It’s a less-expensive option. If you are considering a payday or title loan, a tax refund loan may be less expensive.
Cons
— It’s a high price. Refund anticipation loans may come with high fees. Even if a company says they offer 0% APR on a tax refund loan, they may find other ways to collect fees. “A lot of companies make you put the refund on a prepaid debit card, so the loan doesn’t have a fee, but the prepaid card has a fee,” Farrington says.
— You might owe money. It is possible that the IRS will adjust your refund based on errors in the return or other adjustments, such as past due taxes. “In this situation, you would still be liable for the entire amount of the loan,” Walker says.
— Approval not guaranteed. If your return is complicated or you don’t meet a company’s minimum refund amount, for example, you may not be eligible.
Alternatives to Tax Refund Loans
Want to avoid taking out a tax refund loan? Read below to see other alternatives that may be less costly.
— Take out a personal loan. If you need money quickly, a personal loan can be used for a variety of reasons, including bills and emergency expenses. Interest rates generally range from 6% to 36%, depending on your credit score, loan amount, repayment term and more. Personal loans usually have fixed interest rates, so the monthly payment will stay the same during the term. Loan amounts can range from $1,000 to $50,000 or sometimes up to $100,000.
— Use a different bank account. Some banks may release tax refunds earlier than others. For example, Chime and Varo both say they can provide tax refunds up to five days early.
— File your taxes quickly and correctly. According to the IRS, most taxpayers receive their refunds in fewer than 21 days if filed electronically and received via direct deposit. It can take four or more weeks to process mailed returns and paper checks. You’ll also want to be sure to avoid mistakes to avoid a delay.
— Change your tax withholding. If you often get a large tax refund, you can fill out a new W-4 form to reduce your withholding. This can mean more money available in your regular paycheck. Talk to your employer’s payroll or human resources department to change your withholding. You can use the official IRS withholding calculator to figure out how to break even on your tax return. Just remember that you won’t receive a large tax refund next year. This strategy won’t help you access your current tax refund faster, but it will ensure that your money is spread out more evenly in the future.
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How To Get an Advance on Your 2025 Tax Return originally appeared on usnews.com
Update 12/13/24: This story was published at an earlier date and has been updated with new information.
