You see advertisements everywhere during tax season telling taxpayers not to wait for the IRS to send their refund. The ads says they will give you money right now and they say it is fast.
That is mostly true and if you need money fast, these loans can be helpful, but they are certainly not free.
According to Nerdwallet, many nationally known tax preparers offer zero percent interest loans on tax refunds. The tax preparer hands over cash for at least some part of the refund (usually there is some loan limit). The actual tax refund then goes from the IRS to the tax preparer, not you. If you have some refund left, the preparer issues you a debit card when they receive the tax refund.
If you don't want a debit card, then some preparers will offer a direct deposit or a paper check for a fee. These fees can be $40 or even more.
So, in some cases, you pay for tax preparation (about $50) and direct deposit (about $40). So, that $100 is not a free loan.
If you do get a debit card, using it for cash at an ATM will be easy, but it will cost you in fees of $3 per use or more and you will be limited in the amount you can take from the ATM. If you want to pay rent, for example, it may be difficult to give the rental owner the debit card or to get enough cash from it quickly.
Some of these debit cards can be refilled, so check with the company on how the cards work.
Consumer advocates don't like these tax loans, according to MarketWatch.
Tax preparers use the tax advances to loan your own money back to you, and administrative fees or tax preparation fees act as high interest rates, even if the loan is technically zero percent, according to MarketWatch. The products vary by preparer, so filers should choose carefully when using advances.
According to Business Insider, the loans also do not include the Recovery Rebate Credit, making it a bad bet for people who haven't received their stimulus dollars and are counting on the cash through their tax refunds.
Your credit usually doesn't matter with tax advance loans, since they are loaning you your own money. But if you have liens on your paychecks — such as for back child support — this won't let you get around them.
