What is a Tax Refund Loan?
A Tax Refund loan is also known as a refund anticipation loan. This is a loan that the client borrows against what they expect they will be receiving after they file their taxes for the year. This is how a refund anticipation loan works: A customer receives a loan with the anticipation that the refund amount they receive from filing their taxes will cover the cost of their loan and associated fees. This appeals to the customer, because they are able to get their money immediately without having to wait for the IRS to deposit it or send it in the mail. The danger in this is when the amount of your tax refund is less than the total of the loan and fees. This creates a problem for the customer when they have to pay back additional amounts that they did not anticipate.
For many people, a tax refund loan is an easy way to get tax refund money. Tax refund loans are short term payday loans made against a customer’s anticipated tax return. The customer usually applies for a tax refund loan through a tax preparer. The payday loan amount is related to the amount of the tax refund. A problem with a tax refund loan is the preparer might increase the payday loan amount to increase fees. This can create problems for the borrower if the refund is less than what they expected. The IRS is considering restricting tax refund loans, as they may encourage fraud.
