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Tax Refund Cash Advance Emergency Loans: Pros and Cons

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Jan. 25 2022, Published 2:07 p.m. ET

Are you anxiously awaiting your tax refund because you have some pressing bills to pay? You might want to consider getting a tax refund cash advance emergency loan to help pay the bills.

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Tax refund advances allow you to access your refund early, without having to wait for the check to arrive in the mail or the direct deposit to show up in your account. Tax refund advance loans are available through tax preparation services like TurboTax and H&R Block.

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What's the cost of a tax refund advance loan?

There isn’t any direct cost for tax refund advance loans. You pay the loan back with your tax return, so there usually aren't repayment terms or interest accrued. Most of the short-term loans have 0 percent interest rates.

However, there are fees for having your return filed by a tax service, which could be an added expense if you are used to doing your own taxes. The cost to have your taxes done by a tax preparer can vary depending on how complicated your return is. For example, tax preparation with TurboTax ranges from free up to $119.

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How much money can you borrow?

Loan amounts for refund advances can range anywhere from $200 up to $4,000. You might be able to access the funds almost immediately, depending on how you want to receive the funds. Several tax preparation services offer debit cards that give you instant access to the loan amount. You might have to wait a few days if your want the money deposited directly into your bank account.

How do you qualify for a tax refund advance loan?

If you're considering a refund advance loan, you’ll have to act quickly. Most of the short-term loans are only available from December until the end of February.

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Many tax advance loans don’t look at your credit score when considering your eligibility, but they're issued by banks. The banks look at other factors to determine whether or not you qualify. Those factors could include your debts, credit profile, and tax history with the IRS. They’ll also want to verify your identity.

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Is a tax refund advance loan worth it?

The decision to apply for a tax refund advance loan depends on how urgently you need the funds. According to the IRS, most taxpayers receive their refund as a direct deposit into their bank account within 21 days after filing electronically.

Taxpayers who prefer to fill out their taxes the old fashioned way by hand, or like to receive their return in a check mailed to them, will have to wait six weeks or more for their refund.

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If you're facing foreclosure on your home or the bank is about to reposses your car, a tax refund advance loan might be a good idea. Otherwise, you might want to just wait to receive your refund from the IRS.

What are the disadvantages of tax refund advance loans?

You should remember that tax refund advance loans are short-term loans that need to be paid back in full when you get your return. If you need the money longer than that, you should consider different financing options. You should also be careful about borrowing more money than what you expect from the tax refund.

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