If you are expecting a refund on your federal income taxes, you can acquire a loan on the anticipated refund. It is called a refund anticipation loan. This allows you to access the money quickly instead of waiting to receive your tax refund. Refund anticipation loans are offered from the beginning of January until the end of tax season in April.
How it Works
Tax preparation companies offer refund anticipation loans in partnership with banks. When you take out a refund anticipation loan, your refund will be deposited into the bank that made the loan. If you do not have a bank account, the loan facilitator may require you to open a temporary bank account to receive the refund and will charge a fee for this service. Once the refund has been received, the account will be closed. Other fees will be accessed such as an electronic filing fee, a check cashing fee and application fees. To qualify for a refund anticipation loan, your refund amount must be sufficient to cover the amount of the loan plus any fees charged.
Four states including North Carolina, Illinois, Wisconsin and Minnesota have laws requiring the facilitators of refund anticipation loans to register with the state. Disclosure must be made for the amount of fees charged and the time it will take to receive the loan. North Carolina legislation prohibits lenders from charging fees different from the fees filed with the state.
Refund anticipation loans are short-term and the amount of interest charged is often very high. You should be aware that if you secure a loan based upon an anticipated refund, you still have to pay back this money even if your refund is denied, is less than the amount you were expecting or is frozen. If you cannot pay back your refund anticipation loan, your account may be turned over to a debt collection agency.
There are alternatives available to refund anticipation loans for receiving your federal income tax refund quickly. Check with free tax preparation sites, also called VITA or TCE. Many of these sites will file your return electronically to speed up the refund process. If you file your income taxes electronically, you can receive your refund in as little as three to four business days. You can also elect to receive your refund by direct deposit into a checking or savings account instead of receiving a paper check in the mail.
- A businessman calculating expenses at tax time image by Christopher Meder from Fotolia.com