Why You Should Not Get a Tax Refund Anticipation Loan

Posted on Jan. 5, 2022

IMAGE: Man at table looking concerned at paper, woman in foreground looking towards him.We all hate waiting for our tax refund. You could use a tax refund advance to get your money quicker, but it will end up costing you. You might be getting yourself into a high-interest loan, paying for services you don’t need, or paying a hefty fee. Most people who file electronically and use direct deposit for their refund will receive it in about 21 days.

Many of the national tax filing firms offer refund anticipation loans. They advertise that you can get your refund in a day if you use their services. The company gives you the refund as a loan, and they keep your income tax refund when it comes in from the IRS. However, there are usually fees associated with getting your tax refund on the spot, which eats into your refund amount. Also, many tax filing companies put a cap on the amount of the loan you can receive, which can be as low as $1,500. 

Add in the cost of using a professional tax filing service, and you end up paying a lot to borrow money for just a few weeks. For example, suppose you believe that you will receive the national average of a $3,000 income tax refund and decide to take a refund anticipation loan. In that case, you may only receive $2,700 after interest and fees. That is if the tax filing firm will offer you a loan over $1,500. And consider, if your refund is less than what your tax preparer anticipated, you would owe all the interest and fees from the original, larger amount and could owe the tax filing service for the balance.

Much like a payday loan, a refund anticipation loan has interest rates that can rise to over 200 percent APR.

Most professional tax filing companies charge an interest rate of 10 percent, although some may be higher. While that doesn’t sound like a lot, consider that you’re paying 10 percent to get your refund just a few weeks earlier than some who file electronically and have their refund deposited into their checking or savings account. Much like a payday loan, a refund anticipation loan has interest rates that can rise to over 200 percent APR.

The IRS recommends staying away from tax refund anticipation loans and instead use e-filing options. Most refunds arrive within 21 days if you e-file and use direct deposit.

2021 Federal Tax Refund Schedule

Delivery Type

E-File, Direct Deposit

Paper File, Direct Deposit

E-File, Check in Mail

Paper File, Check in Mail

Delivery Time (from receipt of date filed)*

1-3 weeks

3 weeks

6-8 weeks

6-8 weeks

*These are guidelines. Based on how you file, most individuals can expect to receive their refund within the above time frames.
Source: IRS

Instead of getting an income tax refund anticipation loan or advance, most people can get their refund quickly by filing electronically and opting to receive their refund via direct deposit. Many companies will guide you through filing your return at no charge or for a nominal fee, but watch out for add-on costs, like audit defense, enhanced deduction finders, and advanced support.

If you wish to comment on this article or have an idea for a topic we should cover, we want to hear from you! Email us at editor@texell.org.

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