Read this guide to claim your tax refund loans. You can get complete refund of the taxes on your loan. Also read the pros and cons of tax refund loans.
Also known as Tax Refund Anticipation Loans (RALs), these are loans given by lenders to tax-paying borrowers based on expected Federal income tax refunds.
Basically, you are lent the exact amount of your tax refund and it is repaid when the refund comes in. Tax refund loans may be used at the discretion of the borrower for any purpose considered important.
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Ideally, this money is transferred by many to their retirement savings or invested for multiple returns. Tax refund loans are probably the shortest termed loans in the money market, with repayment schedules as short as a couple of weeks.
Tax seasons typically run from January through April, and once the government makes the refund deposit, it is credited to the lender. In this piece, the procedures involved in getting a tax refund loans were to get one, and all the costs involved will be articulated.
Tax Refund Loans – Complete Details
As earlier stated, your RAL amount limit is determined by the amount you expect to be paid by the government. In events where the amount eventually paid falls short of what was anticipated, the onus remains on the borrower to fully repay the loan.
Tax refund lenders, usually small financial organization, verify the identity of the potential borrower and investigate their history with the IRS to ascertain the credibility and ultimately, qualification for the loan. They also collect details like social security number, residential and work address, contact information, and the tax refund amount paid to the borrower by the government in previous years.
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RALs are quite expensive to take and service. Apart from the typically high-interest rates incurred, there a number of additional costs associated with this type of loan. These include application fees, e-filing fees and check fees. Add these up and you have a staggering amount to repay in a very short time.
Tax Refund Loans: The Where
RALs are available at a few banks and tax preparation companies. It is of necessity that you ask all the needed questions about the loan policies of your choice lenders, as well as the conditions involved before proceeding to apply/take a RAL.
A vital advantage of tax refund loans is that they are processed quite fast. For emergencies and unexpected expenses, this may be a viable option. It is highly recommended, however, that you borrow only small amounts and pay off these loans as quickly as possible. Additional costs may run as high as 10% of your refund and put you in financial constraint if not promptly handled.
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Before making a big decision to take out a tax refund loan, consider a few important factors and how best they pay off in the long run:
- The interest rate: This varies based on the amount you wish to loan, and the probable date of repayment. Take note that late repayments attract extra charges.
- The additional costs/fees: As earlier stated, a number of additional fees apply in this type of loan, all to be paid by the borrower before the loan is considered settled.
- The probability of delay in payment of tax refund: This is a very likely event that is caused by a number of factors, especially due to return errors. You should prepare by getting alternative sources of fund and putting the money together to be repaid on time, pending the time that the tax refund will be deposited.
- The probability that the tax refund paid is lesser than you envisaged: For this situation, the above recommendation also applies.
These factors combine to determine whether or not a tax refund loan is the best solution to your financial challenge. Explore other loan alternatives that will be less demanding. Also, you can consider taking measures to get your tax refund quickly to avoid the accumulation of interests caused by delay in loan repayment.
How Does This Work?
E-file your taxes and make a request for direct deposit. Consequently, you will have the funds electronically wired to your bank account by the IRS and the state, which takes about ten business days and five business days respectively.
Pros And Cons Of Tax Refund Loans
Like every other phenomenon in the loan market, this type of loan has its advantages and disadvantages. As is the case with almost any type of loan, the potential borrower must be aware of both sides of the coin and how best to enjoy the benefits of whatever loan choice they decide to go with.
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A noteworthy perk of tax refund loans is that they can be used for almost anything. The lender (usually a tax preparer or a bank) will not pry into whatever you choose to do with your loan. As a result, you can use the funds for debt consolidation, and payment of other high-interest loans. Credit card debts piling up, or payday loans about to become a financial quicksand can be settled in a matter of weeks.
A second attractive feature of tax refund loans is that the borrower (that is, you) doesn’t always need to have a great credit score. A credit score hardly affects the decision of the lender to approve your loan. What matters in this category is whether or not you are getting paid by the government, and how much you are expecting.
As a cherry on top of the cake, tax refund loans are quickly disbursed and ready to be used in no time! These days, no one likes a long, tedious loan application process with tons of paperwork involved. Once approved, you can get your loan in a matter of days.
On to the disadvantages of this loan type, bear in mind that tax refund loans are expensive to service. This has been earlier established, but for emphasis, do not take any loans that are bigger than you can handle monthly. Also, ask your lender for all the necessary repayment information and get quotes that you can compare and choose from. Because of the interest rates, consolidating debts with tax refund loans is often discouraged. Generic personal loans will cater to this purpose for a lesser price and therefore make a better alternative.
Another disadvantage that choosing tax refund loans pose is non-effect on your credit score. This may seem like a good thing, but your credit score is relevant to new lenders when measuring your eligibility for bigger loans. Even in the case of default, lenders do not report to credit bureaus. If your goal is to boost your credit score, then tax refund loans are not for you.
Finally, there are the complexities involved with different lenders. Different conditions and compliance measures before your loan is disbursed can be daunting. It is highly recommended that no matter the emergency, take time to read contracts from cover to cover to avoid discrepancies.
It is not very good for your finances if you wait on tax refunds to get by. Focus on other inexpensive ways to make money and grow it. Big tax refunds brought about by overpaying paycheck taxes throughout the year may sound like a good idea, but all that money can go to more beneficial ventures.