What are tax refund loans, and how do they work?

If you’re looking for money right now and you’re expecting a refund on your taxes from the IRS, you might qualify for a tax refund loan. 

A tax refund loan allows you to borrow money from your upcoming tax refund. Here’s how to qualify for a tax refund loan, plus the risks and fees you might face if you get one.

Key takeaways

• A tax refund loan allows you to borrow money from your upcoming tax refund.
• The short-term loan comes with fees and, in some cases, interest charges. But you get your money quickly—usually within a day.
• Tax preparation services typically offer tax refund loans.

Tax refund loans—sometimes called refund anticipation loans or tax refund advances—are short-term loans for those who have filed tax returns and are expecting a refund.

Tax refund loans are typically available to eligible taxpayers at the beginning of each year—usually through mid-to-late February.

After you file your tax return with your tax preparation service, you can complete a tax refund advance form. The amount you can request varies by service. And the costs associated with each service vary. For instance, some services charge a fee unless your loan is for a certain amount. Most services also set a minimum amount you must borrow. Some services charge interest too.

If approved, the tax preparation service will then disburse the funds—typically within a day. Some services may do a wire transfer, while others might write you a check if you file in a brick-and-mortar branch. Others might give you the funds on a prepaid card.

Then, when the IRS processes your tax return, the loan amount and any applicable fees and interest charges are deducted from your return before it’s sent to you.

Advantages of tax refund loans

• No credit check: In most cases, you won’t face a hard credit check or a dip in your credit scores.
• Borrow from yourself: Even though you go through a tax preparation service to get your money, you’re simply borrowing money now from your future self—not a bank or online lender. 
• Fast funding: Most servicers can get you the money within a day. If you need money right away and can’t wait for your refund, this is a very fast option.

Disadvantages of tax refund loans

• Fees: You could face different fees for the tax preparation and advancement of the loan, and possibly other fees, depending on where you get your taxes prepared.
• Interest charges: Some tax preparation services charge interest on tax refund loans.
• Paying to borrow from yourself: Because of the fees, you’re essentially paying to borrow from your future self. Instead of pocketing all that money if you wait a few extra weeks, you’re paying a decent chunk to get some of that money sooner.
• Extra hoops to jump through: To get your money, you might be obligated to open an account wherever your servicer sends money. For instance, TurboTax says you need to open a checking account with Credit Karma.

You can get a tax refund loan from your tax preparation service, including H&R Block, Jackson Hewitt and TurboTax. You might find other local tax preparation services near you, but it’s important to do your homework. Look up the companies on the Better Business Bureau website to see if they’re accredited and the ratings of past customers who have used them. This goes for agencies and individual tax preparers.

A tax refund loan can be a great option for those who have already filed their taxes, are expecting a refund and need funds right away. If you don’t qualify or otherwise don’t want to take out a personal loan or a credit card cash advance, a tax refund loan might be a good option.

However, keep in mind that tax refund loans do come with fees—and sometimes interest charges too. You’re essentially paying to get some—or all—of your tax refund sooner.

So if you can wait until the IRS processes your tax return, you can get your refund without losing any of it to fees and interest charges.