Tax filers that are eager to get their tax refund are increasingly getting an advance loan on their refund. According to the IRS, over 20 million took loans against their tax refund. Many tax preparation service providers make it convenient to get a loan on tax refunds they are filing for customers.
If you are anxious to get your refund, then I recommend that you don’t overpay the government in the first place! Correct your withholding deductions and keep your money instead of loaning it to the government for free. If, for some unforeseen reason, you end up being owed a refund, why hand a chunk of it to a lender to get it just a few days sooner? A refund advance is a personal loan, and like any personal loan, a financial mistake that leaves you poorer with charges and fees. Since this advance is a short term loan, normally 10 days, the annualized rate customers are charged on these loans can be an astronomical 200-700%.
Charges for refund advances include: application fee, electronic filing fee, administrative fee, pre-paid credit card fees, and possibly an interest rate charge as well. A consumer advocate group says many low-income filers didn’t even know that they were getting a loan on their refund, they thought they were receiving their actual refund!
Fees on these advances have become so egregious that competition is increasing and regulators are beginning to look at them. However, because the fees are mingled among tax return preparation fees, most customers find everything tax-related murky and just pay the fees to get their money sooner. Please do not let this be you as well.