When filing a tax refund, taxpayers often anticipate receiving a sizable refund that will greatly assist them in the short and long term. People eligible for tax return advance loans may be persuaded to apply so they can receive their refund early by promoting access to their own refund.
However, experts say that this is not a good practice. In a way, tax refunds are similar to loans. Weeks or months before your refund, they offer you a portion of your anticipated tax refund. This can sound like a decent idea to people who don’t research how taxes operate.
Not everyone can profit from these loans despite how appealing they may appear. We know that many of you may be deeply in debt due to your holiday purchasing. Inflation has increased the cost of everything this holiday season, making it more advantageous to have some extra money on hand.
However, taking a high-rate tax return advance is not the best action. But before continuing, let’s describe a tax refund advance in detail for you.
What is a tax refund advance?
An expected tax refund is used as security for a short-term borrowing known as a tax refund advance. Between December and February, you can often borrow anywhere from $200 to $4,000.
The average annual percentage rate for this type of loan is about 35%, which is higher than most other loans. For comparison, the average APR on a personal loan is around 11.08%, while the average APR on a credit card is around 18%.
Even if some tax filing companies don’t charge interest for this service, as long as you agree to submit your taxes with them, it’s still possible that you will have to pay a fee to file your taxes.
Weiss emphasized that this is not a conventional product. As a result, there is a huge disparity between companies in terms of fees, regulations, and APRs. Weiss advises reading the small print and weighing your options if considering a tax refund advance.
Read more: Your Tax Refund in 2023 May Change If You Are Affected by These Changes.
What are the risks of taking out a refund advance loan?
There is always a chance that you won’t get a refund when you file your taxes in 2023, or your return will be less than anticipated because these loans are based on an anticipated refund.
If this occurs, you will be required to pay the loan in full or the remaining balance out of your pocket. Second, even if it is marketed as having a 0% APR, Weiss explained that refund advances are rarely free.
There may be unstated costs, such as the requirement that you pay for expensive tax filing services. Additionally, some services have high-interest rates, making this a costlier lending choice.
Read more: Application for Idaho Tax Rebates Worth $600 Nears Its Deadline; Here’s What To Do!
