Before Receiving a Tax Refund Advance, Ask the Following Questions
Many Americans rely on tax refunds to pay bills, fund bigger goals, or, this year, keep them afloat while they wait for the government to reopen to get paid to do their jobs. While it may be tempting to get a tax refund advance, especially this year, consumer advocates warn against the practice.
Taxpayers took out about 1.7 million pending loans, or RALs, in 2017, up from 1.5 million in 2016, according to a report by the National Center for Consumer Law.
While the IRS said it will pay tax refunds as usual this year, some experts have expressed concern about the government shutdown , which could make the advance more attractive to people in distress.
“Consumer advocates generally dislike prepaid return products due to the high cost and potential for fraud,” CNBC reported. “And since the IRS often returns money quickly (in less than 21 days by its own estimates), it’s usually best to stay out of the way.”
Tax preparation companies including H&R Block, Jackson-Hewitt, Liberty Tax and TurboTax offer advances based on your expected profit. Those who meet the requirements can receive an advance payment within 24-48 hours, Consumer Reports notes. If you go through one of the listed companies, you may have to file your tax return with it as well.
If you need to get your money back as soon as possible and you are looking for an advanced product, know that nothing is free, even if the bank or financial institution invoices this way. “Fees may apply depending on the product and vendor for applying for an advance, checking your credit, and transferring money to you,” CNBC reports. If you are given a prepaid debit card to access funds, there may also be fees attached to it.
Make sure you ask if you are charged an annualized rate or interest if your refund (your refund is collateral for the loan) does not arrive as expected, especially with the government shutdown.
Finally, if you are really struggling and considering getting an advance, go to a small local bank or credit union for short-term loans, CNCBC suggests, whose terms can be better than loans.