Tax Refund Anticipation Loans

A tax refund anticipation loan is a short-term loan that is secured to the taxpayer's expected tax refund. This loan will typically have a higher interest rate and is received through a borrower applying for the loan through a paid tax preparation firm. These companies receive a fee for each loan that they originate, but the IRS prohibits basing the fee on the expected refund amount. Generally the fee is a flat fee that must be paid.

Because of the new technology of e-filing, tax refund anticipation loans can be direct-deposited into your bank account within two weeks. Some people are turned off by the long time period, as people are often looking to be able to receive the money quickly, similar to what you would a payday loan. These loans are often applied for by people who need emergency funding. They may have medical bills, credit card payments or other debts that the must pay, but waiting for the IRS to process their tax return may take too much time. Depending on the time you file your taxes, it can take anywhere from a week to a month and a half before you can receive your tax refund.

However, if you are able to e-file and do your taxes early in the year, it can take the same amount of time to get your tax refund as it would a tax refund anticipation loan. Therefore, it would be pointless to waste money on interest when you can receive your tax return just as quickly.

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