What Is A Tax Refund Anticipation Loan

Posted by & filed under .

Definition

Many people will use a tax refund anticipation loan without even knowing what these types of online payday loans are and how these loans work.

This is a loan that occurs when a person goes to have their income taxes prepared and have their completed tax return submitted.  Once it is submitted there is a lender that will issue a loan in the amount of the refund that the person is getting back from the government.  Once the person receives the tax refund it is used to repay the loan that was borrowed.

Risk

There are many risks that are associated with a tax refund anticipation loan but the biggest risk is that people will still be required to be paid back even if the Internal Revenue Service rejects the tax return form that was prepared.  Even if the tax payer is not receiving any money back from their taxes they will still be required to pay the money back along with any interest for the loan.

Until the Internal Revenue Service accepts the tax return that is prepared it is not official.  Even if it is done by a tax preparation place such as HR Block it is not official.  But all that has been done is the forms are filled out.  It will be official once the Internal Revenue Service signs it.  It will usually take a few days to be approved.  It will even take this long even if it was filed electronically.

Most of the tax returns that are prepared are approved within just a few days.  This is why the lenders are willing and able to approve these loans.  Because the lenders know that there is a risk of just a few of the tax returns being rejected they are willing to take the risk of lending the money.  The lender figures that they will get most of their money back.

The other risk is that the taxpayer is taking a risk with their credit.  If their tax return is denied or rejected and they have taken the tax refund anticipation loan they will still be required to pay off the loans for people with bad credit in full.  If the taxpayer is not able to pay off the loan it will damage the person’s credit record.  The borrower will have issues in the future receiving loans if this is the case.  It is also possible that if the taxpayer is not able to pay back the loan that the unpaid anticipation loan total will be paid off out of any future tax refunds that may be received.

Advantage

With all of the risks that come with a tax refund anticipation loan there is an advantage to not getting one of these refunds.  One of the advantages is that once the taxes are prepared the money will be refunded almost immediately.  If the money is electronically deposited the money can be in your account very quick.

Another advantage is that if you do not take the refund anticipation loan you will receive the full and total amount of the tax refund.  This is because you will not have to pay the fees that are associated with these loans.

It is highly suggested that a taxpayer weigh all of the pros and cons to taking a tax refund anticipation loan.  It is possible that these loans are not the best decision for you.