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A significant number of Americans depend on their tax refund to cover bills, support larger financial goals, or this year, stay financially secure while awaiting government action to resume payments. Although the idea of a tax refund advance may seem appealing, especially this year, consumer advocates caution against it.
In 2017, approximately 1.7 million taxpayers took out refund anticipation loans (RALs), marking an increase from 1.5 million in 2016, according to a report by the National Consumer Law Center.
While the IRS has stated that tax refunds will be issued as usual this year, concerns have been raised by some experts due to the government shutdown, which may make advances more tempting for those facing financial struggles.
“Consumer advocates generally disapprove of refund-advance products because of their high costs and the risk of scams,” reports CNBC. “Since the IRS usually processes refunds quickly (typically within 21 days), it’s often wiser to avoid them.”
Tax preparation services like H&R Block, Jackson-Hewitt, Liberty Tax, and TurboTax provide advances based on your anticipated refund. Those who qualify can expect to receive the advance within 24 to 48 hours, according to Consumer Reports. Keep in mind, if you choose one of these providers, you’ll likely need to file your taxes with them as well.
If you need your refund urgently and are considering an advance, be aware that there’s always a cost, even if the bank or financial institution presents it as free. “Depending on the product and provider, there may be fees for applying, checking your credit, or transferring the funds,” CNBC reports. A prepaid debit card used to access the funds might also come with additional fees.
Be sure to inquire whether you’ll incur fees or a penalty APR if your refund (used as collateral to repay the loan) doesn’t arrive as expected, especially in light of the government shutdown.
If you’re facing financial difficulties and contemplating an advance, consider contacting a small local bank or credit union for short-term loans, suggests CNBC, as they may offer more favorable terms than those available through advances.
