How to Get a Tax Refund Loan

Point of Interest

Early access to your tax refund may sound appealing, but tax refund loans should only be used in dire circumstances, since you’ll wind up paying interest on the loan.

Often referred to as a tax refund anticipation loan (RAL), a tax refund loan is a short-term loan offered by third parties that give borrowers immediate access to their expected income tax refund. Depending on the size of the refund and the requested amount, it’s possible to take out this type of loan completely fee-free and with no interest. Larger loans usually carry a small fee, but smaller loans are frequently used as a marketing piece to get consumers in the door and comfortable with a new company.

How to get a tax refund loan

If you’re wondering “where can I get a tax refund loan,” the process is simple with several options available.

1. Collect the necessary documents.

Before you apply for a tax refund loan, you will need to collect documents that the lender will require. These include your employer’s name and contact information, current and any older W2s from your current job, estimated income or pay stubs from the tax year and your driver’s license. Depending on the lender, all of these documents might not be necessary, but having them prepared will make the process much simpler.

2. Begin researching banks and financial institutions offering tax advance loans.

Different banks and financial institutions will offer different programs for tax refund loans. You’ll want to consider any interest charges you’ll be subject to, the minimums and maximums you can borrow, and what the repayment terms are.

Many tax refund loans are available completely free of charge. For example, Jackson Hewitt offers several different advance loans with no fee and 0% APR on the borrowed money. With the company’s No Fee Refund Advance Loan, you can get up to $3,200 as early as January 2. Those needing larger amounts of money will be subject to a small fee. The Go Big Refund Advance Loan from Jackson Hewitt offers up to $6,400 with a 2% loan fee.

3. Fill out your loan application.

Many lenders, including Jackson Hewitt, allow borrowers to apply for a tax refund loan online in minutes without ever needing to come into an office. Typically, applications will start getting approved in mid- to late December for the upcoming tax season.

However, these dates are well before you file your taxes or receive W2 statements. Many lenders will preapprove borrowers for a certain amount of cash through the program. This means that even before you know the exact amount you’ll receive in your refund, you can get access to funds. Be aware that even if you’re approved for more money than you receive in your actual refund, you will still need to pay back the full borrowed amount.

When to use a tax refund loan

Under the basic pretenses of the time value of money (money now is worth more than money later), you should take out any free tax refund loans as often as possible for as much money as you’re allowed. But, the short duration of the time frame of the loan makes the theoretical benefits a bit challenging to cash in on at any meaningful level. So don’t just take out the loan for the sake of taking out the loan.

Tax refund loans should be used when you have an immediate need for cash now that you’re unable to wait a few weeks. Additionally, you should only use a tax refund loan if you have good financial discipline. While it’s easy to say you’ll use your actual refund to pay off your loan as soon as you receive your check, execution on that promise can sometimes be a challenge, especially when new financial burdens present themselves. Additionally, there’s the chance you don’t receive as much as you’re preapproved for, which could leave you unexpectedly owing more than you get.

The actual reason for the need is not important as long as it is a need that you can’t wait a few weeks to meet. Taking out loans to satisfy wants that can wait does not fall under the category of fiscal responsibility.

Another popular trend we see too often is people applying for a tax refund anticipation loan because they’re planning on putting off filing their taxes until close to the filing date or filing for an extension. This should never be a reason to take out a loan. Yes, filing your taxes is no fun, but the quicker you get it done, the quicker you’ll get your money.

Tax refund loan alternatives

If you don’t need the funds immediately, the obvious alternative is to file early and wait the few weeks necessary to get your refund. For those that do need access to funds immediately, there are other options. These options include personal loans, 401(K) loans and dipping into your savings. While these are all viable options, you’d be wise to take a fee-free and no-interest tax refund loan if that is available and will cover all the expenses you need to cover.

An additional and undermentioned option is tweaking your tax withholding preferences throughout the year so that the IRS takes out less money from each paycheck. This is technically the best way to have the most immediate access to your funds.

Remember, an income tax refund is not a special prize or reward from the government. It is money being returned to you that you’ve overpaid on your taxes throughout the year. The one important drawback here is to be careful that you don’t tweak your withholdings too heavily, where you end up unexpectedly owing money on your taxes at the end of the year.