How Does A Tax Refund Anticipation Loan Work

Tax season is upon us and many people will accept the option of receiving a tax refund anticipation loan.  The problem is that the people who accept these loans do not know exactly what these loans are and how these loans work.  This can sometimes cause a major financial impact on the side of the borrower.

How Do These Loans Work

These loans are very simple to understand.  When a person goes to a tax specialist to have their income tax return completed the preparer will submit it and will also give the option of obtaining a loan in the amount of the tax refund.  There is an understanding that the loan will be repaid when the borrower receives their tax refund.  This sounds like the perfect solution for someone who needs their tax refund quickly but often times they do not understand the risks that are involved.

Who Issues These Loans

When we are discussing a tax refund anticipation loan the companies that issue these are typically the more popular tax preparation companies such as H&R Block, Liberty, and Jackson Hewitt.  You will often find these companies located in areas that are poor.  The reason behind this is that they can make the bad credit loans available to those who are working but still need the money quickly.  Sadly these people may also think that they are just getting their refunds early and not actually obtaining a loan.

Risks Involved With These Loans

There are many different types of risks involved when dealing with tax refund anticipation loans.  Some of these risks are not made clear to the borrower or the borrower simply does

not understand them.  The first and the largest risk is that the borrower who receives the loan will still need to pay off the loan in the case where the Internal Revenue Service denies the tax return.  The amount will also be larger due to the amount of interest that will be owed as well.  The tax return is not official even though it has been prepared until the IRS puts their stamp of approval on it.  Sometimes this can take several days even if the return is filed electronically.

Why You Should Not Take Out This Type Of Loan

When you have your taxes prepared and you are waiting for your refund it might seem like an eternity if you are in need of the cash.  The truth is that once the return is filed it only takes a day or two to have it approved.  Once approved the money can be electronically transferred to your bank account and there is almost no wait time at all.

The other advantage to not taking out a refund anticipation loan is that you will get the full amount of your refund that is coming to you.  If you take a loan on your money you will find that the lender will take out a fee as well as interest that will need to be paid.

Conclusion

If you are considering a tax refund anticipation loan you might want to think again.  These types of loans are risky and will many times cost you extra money.  However if there is no way that you can wait for your tax refund it is a good option to have.

Source: www.thesavingsblog.co.uk

Category: Credit

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