Are Tax Refund Loans a Good Idea?

tax refund loans

Tax season is upon us, which has many people eager to get their hands on their refund. It’s completely understandable that you would want your refund as soon as possible. After all, it can help you pay down bills, get much-needed repairs done on your car, or even treat yourself to something that you’ve been longing for. Now that tax season is underway, you’ve likely seen ads for refund anticipation loans. These loans promise to give you money upfront now that you can pay when your refund comes in. However, while they may sound tempting, are these loans a good idea? 

What You Need to Know About Tax Refund Loans

The first thing you should understand about a refund anticipation loan is that it is just that, a loan. Tax refund loans lend you cash in exchange for using your anticipated refund as collateral. However, this money is far from free. Companies that offer these loans will charge you fees and interest, which tend to be quite high.

What’s more, when you sign a contract with a company for a refund anticipation loan, you are putting yourself at some risk. The amount that you anticipate receiving back from your tax returns is not necessarily that amount that you will actually receive. There are many reasons why you may receive a smaller return, or even owe the IRS in the end. For example, if there were some type of error on your tax return forms, the IRS may adjust the amount of your refund after your return is filed.

So, what happens if your tax return wasn’t the amount you were expecting? If you’ve taken out a refund anticipation loan, you may find yourself in a bit of a bind. These loans are given out with the expectation that they will be closed within a few weeks. Once your tax refund is issued, you owe the full amount of your return immediately. If you don’t have the cash to cover that amount, the company who extended the loan to you may begin collection proceedings.

A Better Option

If you’re in need of a short-term loan, you may want to consider visiting your local pawn shop. Selling or pawning your items is a much safer method of getting money in a hurry. When you pawn an item, the terms of your loan will be explained to you in detail from the start. That way, you can rest assured that you will have plenty of time to pay your loan back. If the unexpected happens and you’re unable to pay back your loan, you will never have to worry about a collections company coming after you. That’s because with a loan from a pawn shop you leave your collateral ahead of time.

To learn more about how our loans work, come into our shop and one of our knowledgeable associates will answer any of your questions. We believe in being upfront with our customers throughout the entire loan process. We look forward to serving you!