What are tax advance loans?
When people need money, they can consider getting a tax advance loan. These loans, also known as tax refund advances (or RALs), are granted based on the expected federal tax refund.
At the time of obtaining a tax advance loan, you will be given part or all of the money you will receive as a refund when you file your federal taxes. This allows you to use the money immediately instead of waiting 30, 60 or even 90 days for the return to arrive. In return, most lenders will charge you interest and / or commissions to lend you the money.
There are many companies that offer tax loans, but how they work, how much they will cost you and if they suit you depends on several factors.
Let’s take a look at tax loans and what they imply.
Tax advance loans are short-term loans that are based on the return you will receive after your tax return.
Many people already have planned what they will spend on their reimbursement even before receiving it, they want to pay bills, take a vacation or invest in their business. The challenge that many face is that they need the money immediately, but receiving the tax return can take up to 90 days.
For that there are tax advance loans.
The lenders offer these tax advance loans because, when you file your tax return, they will know exactly how much money you will receive for your return. Many companies are willing to offer you a part or the total return.
How do tax advance loans work?
The lender will send you the money from your tax advance loan and then, when you receive your federal tax refund, you will pay the loan. If for some reason your return is less than you expected, you will still have to pay the total loan amount.
The specific regulations, rules and requirements for tax advance loans will depend on each lender.
Some tax preparation companies, such as Jackson Hewitt, H&R Block, and Intuit Turbotax, offer “free” or 0% interest loans, but you should keep in mind that they really are not completely free.
In most cases, these companies have a requirement to offer tax advance loans: you must hire them for them to do your taxes. These loans end up not being free, since you will have to pay a fee to do your taxes, and you may also have to pay other associated fees, such as for electronic filing.
There are other companies that do not offer tax services and that offer tax loans. However, you will most likely be charged a flat rate or interest on the amount of money you borrow.
When you take into account all costs (direct or indirect), you could end up paying up to 10% interest on your return.
Even so, there are times when you may need a quick loan to finance your business, so tax advance loans may be a good option.
Pros and cons of tax loans
When deciding whether to seek a tax advance loan, you should consider some of these factors:
Tax advance loans can be a good option if you need cash and know that you will receive a good return on your tax return. In some cases, these loans could end up being free if you planned to hire a company to do your taxes.
But tax advance loans are not the financial option for everyone. In fact, they may not be the best option for you if you are thinking of using the money to finance your business.
In most cases, a small business loan is a better way to finance your business.
In Romina Financial we always seek to comply with our motto, “We do not close the doors to any business”, and we do so by offering attractive loans, as well as the tools and educational resources that will help entrepreneurs to grow their businesses.
Request a quote for a small business loan today and start building your future.