How Income Tax Refund Loans Work
The refund tax loans have been around for about three decades now. In the past, these loans come with hefty fees, and they were marketed as income tax loans. This explains why they grew to a be a source of conflict among consumer advocates. Tax companies made away with their cut and will then deposit the remainder of the refund into the taxpayer’s bank account. However, since 2012 things have changed and gotten better. Unfortunately, they are still known for exorbitant fees and interest rates.
How they Work
Nowadays, these loans are known as income tax loans, and they are free if you qualify. The amount of money you can get depends on eligibility. As far as qualifying criteria is concerned, most tax-pre servicers are silent. You are required to provide the right identification documents and adequate tax refund proof.
This does not mean you will automatically qualify for these loans. Certain factors could get your application declined. Some of the factors include having bad credit and failing to provide relevant tax forms. Also, if you do not meet the set income requirements, you are likely to be declined. When approved, you will get the loan amount deposited directly into your bank account. You can then access your money with a debit card. In any case, the loan is fee-free and has 0% interest. Although that is the case, some experts advise consumers to approach them with caution.
Tax advances are loans. This is because you get the cash from the bank which is then reimbursed when your refund is processed. To provide these services, tax-prep firms ought to cover the bank fees. This makes them free for the taxpayer. Taking this into account, you can argue that these loans are not free since tax-prep companies will pay the bank fees.
Hidden Costs
Refund Transfers
If your application for the loan is rejected; the tax preparation firm may offer you a concession prize. In this case, the refund transfer is not free. Rather than paying tax-prep fees, you can defer the same with the transfer. After your refund is deposited, the tax-preparation firm will deduct its fees. These services are marketed or their convenience and speed.
Accessing Your Funds
Debit cards serve as an alternative to checking accounts. Most tax-prep firms provide prepaid debit card products to customers. However, these cards have additional fees. Thus, they are likely to eat a small percentage of the tax refund.
