How to Borrow Against an IRS Refund

Weigh your options when deciding how to receive your refund.

Weigh your options when deciding how to receive your refund.

For some taxpayers, the government holds onto their tax overpayments and refunds longer than they can afford. If you need the money now, you might not be able to wait any longer than you have to. Electronically processed refunds can take up to 21 days to receive, and those filed by paper form take even longer. A tax refund loan, "instant refund" or refund anticipation loan might be able to help speed up the process. Just remember, regardless of the name, a loan typically costs you some of that refund.

Lenders or Tax Preparers

Some lenders, tax preparers and online tax preparation services offer filers loans so the refund can be pocketed now instead of later. Ultimately, this means you are paying to borrow your own money. Loans may be offered to cover the costs associated with filing your taxes, they may be for a partial amount of your refund, or they may be for your full refund amount. The loan is offered to you in anticipation of the refund amount. You will have to repay the full amount of the loan even if you do not get the refund you expect. Additionally, these loans are typically high-interest, fee-laden, short-term loans.

Repayment Options

How you repay the loan will depend on the terms of the loan and who you received it from. Loans issued through your tax preparer or tax preparation service are usually repaid automatically. You will fill out the paperwork to authorize the Internal Revenue Service to send your refund directly to the preparer's account to pay off the loan, unpaid fees and unpaid interest. However, other lenders may issue loans in the "payday loan" fashion and you will be responsible for repaying the loan within the terms or face additional fees and collection costs.

Get the Best Deal

Before you jump on the first offer, do your research. Pay close attention to the terms and conditions of the loan being offered. Make sure you understand the exact amount you will be paying to pocket your cash today, rather than a few weeks from now. Look for a loan that charges you the least. According to the Consumer Federation of America, loan fees can range from $29 to $89, or a 67 percent to 774 percent annual interest rate. According to the MoneyZine website, the IRS reported that people spent $700 million to obtain refund anticipation loans in 2011. In some cases, you might be better off asking for more time to pay a bill or put off a purchase and wait for the refund to show up.

Lending Criteria

Lenders determine the criteria that are used to approve you for a loan. Some tax preparers may treat the loan as a secured debt if they feel reasonably certain you are entitled to the refund. Others may not check your credit, nor even require that you have filed your tax refund. Instead, they will issue a tax refund loan with similar terms to payday loans. Check with the lender if lending criteria are a concern and shop around if you are having trouble obtaining the loan.

About the Author

Sara Mahuron specializes in adult/higher education, parenting, budget travel and personal finance. She earned an M.S. in adult/organizational learning and leadership, as well as an Ed.S. in educational leadership, both from the University of Idaho. Mahuron also holds a B.S. in psychology and a B.A. in international studies-business and economics.

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