Everything You Want to Know About a Tax Refund Advance Loan

Chang Fu
March 6, 2020

Tax refund loans or advances are short-term advances on a future tax return. If you need cash now for an emergency expense or to pay bills, some tax preparation services offer tax refund advances while you’re still waiting for your income tax return and expected refund.

The amount of the tax refund advance plus any fees are deducted from your tax return after it’s issues. Loan amounts usually range from $2,000 to $3,500 and you can get the money in as little as 1 day. To be eligible for a tax refund loan (also referred to as tax refund advance, tax advance loan or tax refund anticipation loan), you’ll need your taxes prepared by the company offering you the loan and that can mean a tax preparation fee.

Tax refund advances are appealing to early tax return filers and taxpayers who can claim the Earned Income Tax Credit or Additional Child Tax Credit. If you are living paycheck to paycheck, the early money that comes from your tax refund can be a huge boost and could save you from having to use payday loans, short term loans, or a payday advance app.

An alternative to a tax refund advance is getting a Possible loan, an installment loan that takes minutes to apply for and if approved, can get you money within an hour. Borrowers repay every couple of weeks and can build credit history since payments are reported to the primary credit bureaus.

How tax refund advances work

Before 2012, tax refund anticipation loans were common and very expensive, similar to payday loans. After 2012, regulators took action against tax preparers offering refund anticipation loans and took advantage of a low-income taxpayer who was living paycheck to paycheck. Today, major tax preparation services have moved away from tax refund anticipation loans and offer tax refund advances to taxpayers.

Tax refund advances are usually available at no additional change from most tax preparers. You’ll get an advance on your future tax return and there’s no interest or fees on the money you borrow - an interest-free loan!

However, you’ll still pay the fees for getting your taxes prepared. In fact, tax preparation companies use a tax refund loan or advance as a marketing tool to get you in the door and do tax preparation with them. In addition, tax return services earn additional revenue through other services and upsells as well as charging an additional fee for those who can’t pay for the tax preparation up front.

Here’s the basic process:

  1. Evaluate a few tax preparation services - look at both the fees they charge for their service as well as how their tax refund advance works.
  2. Have your taxes be prepared by the tax preparation service fit your needs.
  3. Get a tax refund advance based on your expected tax refund.
  4. Choose how you want to receive the money (some tax preparers have a prepaid debit card like Walmart MoneyCard or Netspend Visa Prepaid Card but watch out for the monthly fees and charges!).
  5. Once the tax preparer receives the tax return, they’ll deduct the amount of your tax return plus fees before giving you the rest of your actual tax refund.

Who offers tax refund advances?

Most major tax preparation services offer tax refund advance services. Below, we review three of the top services.

TurboTax

TurboTax offers a tax refund advance between $250 and $2,000 depending on the size of your tax return refund. There are no loan fees and no interest, and you can receive money within 1 hour of IRS acceptance of your tax return.

To qualify:

  1. Your refund must be $500 or more
  2. You are 18 and older
  3. Certain states like North Carolina and Illinois are excluded
  4. You are e-filing with TurboTax
  5. You can be approved for a Turbo Visa debit card
  6. Plus other requirements

Note that the amount of your refund advance will go on your Turbo Visa debit card. A physical copy of the card is mailed to you in 5-10 pieces but you can start spending online with your card information a few hours after you are approved. You’ll be limited to only use the money at places that accept a Visa debit card. In addition, once the IRS distributes your tax return, TurboTax will subtract out the amount of your refund advance plus any other fees and put the rest of the money on your Turvo Visa debit card.

TurboTax works with First Century Bank, N.A. Member FDIC as the 3rd party lender so you won’t be borrowing money from TurboTax.

H&R Block

H&R Block offers a tax refund advance between $250 and $3,500 with no interest and no fees. You can receive money the same day you file your tax return if you are approved.

Because H&R Block’s tax refund advance is offered through its partner lender Axos Bank, the qualification criteria is not clear. Borrowers must meet certain eligibility criteria such as having a sufficient tax return from the IRS and provide appropriate identification. Axos Bank will evaluate the application based on standard underwriting criteria and make the decision to approve or deny the application.

Proceeds from the loan will be placed on a H&R Block Emerald Prepaid Mastercard. The card allows a one-time transfer of funds by check or ACH from the card account for no fee. When your tax return comes, the amount will be deducted for any tax preparation fees and the tax refund advance and the remainder will be disbursed via direct deposit to a checking account, through check, or on your prepaid card, depending on what you select.

Your credit score will not be affected by applying for a tax refund advance but the lender Axos Bank may review your credit report.

Liberty Tax 

Liberty Tax works with the lender Republic Bank & Trust Company to offer tax refund advances with amounts between $500 and $6,250. The loan amounts are based on the expected Federal refund minus fees and loan approval is subject to underwriting and approval. Note that unlike tax refund advances from H&R Block and TurboTax, there is a finance charge that comes out to a 35.99% annual percentage rate of interest (APR).

Other details such as the disbursement method and specific approval requirements about the tax refund advance from Liberty Tax is not available online.

Honorable mention: Jackson Hewitt

Jackson Hewitt offers early refund advance loans as well. Jackson Hewitt tax refund advance loans are underwritten by MetaBank and has amounts from $200 to $2,500. Loan APRs vary and there are multiple disbursement options including prepaid debit card and ACH direct deposit into a bank account.

Benefits and Risks of a tax refund advance or tax refund loan

Benefits

  • If you have an emergency expense or need money quickly, you can get funds quickly through a tax refund advance.
  • Because the tax refund advance is secured by your future tax return and tax preparation companies offer this, there can be little or no fee associated with the loan.
  • Calculating taxes are complex and using a tax preparation service may help you get the right amount of tax refund while allowing you to use a tax refund advance.

Risks

  • The amount you can get through a tax refund advance is usually closely aligned with how much of a federal tax return you will receive. Therefore, the loan amount is limited to what you will receive.
  • Disbursement options for the funds are limited and usually onto prepaid cards from the tax preparer which may include requirements and fees you did not plan for.
  • The tax refund you receive will be much lower due to deductions to repay the tax refund advance as well as tax prep fees. Your short-term financial gain through the tax refund advance has a longer-term cost.

Alternatives to a tax refund advance or tax refund loan

Although a tax refund advance can come in really useful around tax season, there are many alternatives as well:

  1. A loan from Possible Finance - Possible has installment loans up to $500 that build credit history. Apply in minutes with no FICO credit check and if approved, receive money in minutes. Because a Possible loan is repaid in installments over 2 months, your payments will be reported to all three major credit bureaus - Experian, Equifax, and TransUnion - allowing you to build credit history and improve your long-term financial health.
  2. Personal loan or credit card - If you have an OK credit score, why not get a personal loan? Many banks and financial institutions offer personal loans with reasonable APRs and repayment terms. Credit checks are common though so know your credit score before you apply. Determine which lender is best for your situation and weigh that against using a tax refund advance. Likewise with a credit card! You can repay all or part of your loan or credit card with your tax refund when you get it, allowing you to choose what tax preparer you want to file your taxes with...or if you want to do it yourself!
  3. Traditional payday loan - A payday or short-term loan may be an option if you expect to have funds to be able to repay the loan in a few weeks. A payday loan is usually up to $1,000 and to apply, you’ll usually need a pay stub, an ID, and a direct deposit bank account. Approval often does not require a credit check and you can receive money on the spot. However, average annual percentage rate of interest (APR) from fees can be 400% and as high as 800%. In addition, if you don’t expect to repay your loan in a few weeks with your tax refund or other income, you’ll be stuck in a vicious debt trap.
  4. Online title loan - A title loan is a secured loan that uses your car as the collateral for the loan - in other words, the lender can repossess your car if you can’t repay your loan. If you use your car for work and other purposes, this is likely not a risk you want to take. Title loans can still be expensive with APRs over 100% and lenders and financial institutions may track your car movements to make sure you pay off your loan.
  5. Payday advance apps - There are a number of payday advance apps that allow you to “advance” an amount on your future paycheck so you can use the money now. Apps such as Earnin, Brigit, and Dave all allow for payday advances usually up to $100 on the first time. If you’re only looking for a small amount of funds, this may be an easy option for you to get cash quickly. However, watch out! There can be fees, tips, and subscription costs from using these apps and APRs are not quoted.

Is there a credit score requirement?

There are usually no credit score requirements associated with getting a tax refund advance. Some tax preparation companies such as TurboTax work with lenders like First Century Bank that don’t seem to check your credit at all. Others like H&R Block and Liberty Tax, through their lenders, may do a credit check in the form of a soft inquiry. A soft inquiry won’t hurt your credit score but tax preparers and lenders will access your credit history and have credit information about you when they are deciding whether to approve you for a loan.

Final Verdict

A tax refund advance or loan can be useful if you need money fast. But consider all of your options, such as a loan with Possible before deciding to use a tax refund advance. There are many alternatives to a tax refund advance without having to commit to the same tax preparation service that is doing your tax refund advance. In addition, read the fine print and understand that a tax refund advance is a loan. Finally, know that your disbursement options may be limited to a specific prepaid debit card and you won’t be able to get the money from a tax refund advance via direct deposit in your bank account,

Chang Fu

Chang is an avid writer, among other things, at Possible. He grew up loving reading and writing, creating his own poems and even a book he's now hidden in an old closet, unpublished. His financial experience at a large bank along with his passion for technology to help undeserved communities inspires him to write for Possible.

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