Financial tips & tricks @ CashBuzz.com » Tax Refund Anticipation Loans: Cash Advances by Another Name

By John Campbell

If you’re currently having state and local income tax deducted from each paycheck, the refund you’ll receive next year may be a nice financial boost. If you’re married or own property, your refund may also triple or quadruple in size.

If you really need the extra rebate funds as soon as possible, many tax preparing services offer “instant” refunds or tax refund anticipation loans. Unfortunately for consumers, these are typically glorified cash advances. Both the states and the federal government need time to process your completed tax returns and may send you your final rebate check weeks or sometimes months after you file your return. Tax preparers offering instant refunds are actually offering a short-term high interest rate loan based off of the expected refund amount. These loans create another revenue stream for tax preparers and cost consumers a portion of their rebate checks.

Making matters worse, if your final refund is smaller than anticipated or never arrives you’re still responsible for paying off the loan. You may end up responsible for paying hundreds or even thousands of dollars out of pocket to pay off your tax preparer. Fail to repay the loan and your credit score could be lowered, you could end up having your wages garnished by a collection agency. Any financial gains you may have otherwise experienced from your income tax rebate could quickly vanish.

For preparers, tax refund anticipation loans offer a win-win situation because they’re receiving payment for both preparing your taxes and providing you with a loan based upon the anticipated amount of refund dollars you’ll receive. If you receive the assistance of a tax preparer when filing this year’s taxes and they offer you an instant refund you should ask the following:

When does the loan have to be repaid?
What is the annual percentage rate (APR) on the loan?
What are the fees I’ll be responsible for paying?
Will any fees be refunded if the actual return is smaller than anticipated?
Can the repayment period be extended if my return is delayed?

If you need your tax refund as soon as possible you do have alternatives to obtaining a tax refund anticipation loan. If your return is processed electronically, you can choose to have it deposited directly into your checking account, if you have one. This may take about 10 days to process but will get you funds possible weeks earlier than having a check mailed to you. If you really need the cash now, you may be able to get a smaller loan amount to cover your immediate needs, which will ultimately cost you less. If you decide to obtain an instant refund you should shop around between preparers for the best loan rates and terms.

As a consumer you have many choices available to you if you decide to get a loan as an advance on your income tax refund. Make the best choice for your own particular situation and you’ll be happier and better off for it in the long run.

John Campbell is the writer and editor of CashBuzz, A financial portal for the rest of us. Check out cashbuzz.com for the latest articles on money management and tips and tricks that can help improve your finances. This article may be reprinted on your Web site if the copyright, author information and active link are included.