The Pros and Cons of Refund Anticipation Loans

There has been a dramatic rise in the popularity of refund anticipation loans at tax time. These loans can be a good or bad idea depending on your situation and why you feel you might need one. Let's take a look at the pros and cons of getting such a loan.

PROS

If you are having a cash flow problem and need money immediately, a refund anticipation loan could fill that gap for you. Sometimes you can get a cash advance on a paycheck to fit the same need, but perhaps you need a larger some of money fast and such loan could do that for you.

Refund anticipation loans are processed much more quickly than a conventional loan. A refund anticipation loan can be approved in about 24 hours and the funds dispersed within approximately 48 hours in comparison to conventional loans, which can take weeks from application to disbursement.
If you get a loan against your refund, the tax professional providing the loan generally takes their fees from your refund. Therefore, you avoid upfront payments for the preparation of your income tax return.

CONS

The interest and fees attached to such a loan are generally very high. This is because a third party lender is usually involved. Although people who have prepared your taxes offer these refund anticipation loans, the loan itself usually comes from a bank or lender outside of the tax professional's operation.

You are ultimately responsible for the full total of the loan. If, for some reason, the lender does not receive the full amount of the loan from the IRS refund, you must pay the difference out of pocket.

Many people take advantage of refund anticipation loans simply because they are an available means to get cash right away. If you are not in urgent need of this money for some pressing obligation, it is always better to just wait for your Internal Revenue Service refund.

As mentioned before, such loans generally charge a very high interest rate. There are almost always fees added in addition to the high interest of a refund anticipation loan. The combination of these two factors makes this sort of loan ill advised unless you are experiencing pressing financial difficulties that make immediate relief necessary. If you can hold off these obligations until the time you receive your Internal Revenue Service refund, it would be better all around for you to just wait.

While filing your income tax return, your consultant is likely to sure you a fat figure as your refund from IRS! At the same time he presents you a proposal - take a loan against it and you can start spending that right away. Well, looks lucrative at the spur of the moment but is it worthwhile? Chintamani Abhyankar explains.

Chintamani Abhyankar, is a well known expert in the field of finance and taxation for last 25 years. He has written many books explaining inside secrets of the magic world of personal finance. His famous eBook Stop donating your money to IRS which is now running in its second edition, provides intricate knowledge and valuable tips on personal finance and income tax.