When it comes to tax season, with a wide variety of tax deductions to consider, as well as many factors that might mean that tax has been overpaid, many people will be looking forward to receiving a tax refund.
Whether you have the patience and know-how to effectively act as your own accountant, or you would instead prefer to hire a tax preparer to take care of this aspect of book-keeping for you, if you have paid more tax than necessary – and have correctly filed out your tax returns – then you could be in for a nice bonus come the end of the tax year. However, if there is an urgent need for the money, or simply a desire to spoil yourself, then you might consider a tax refund loan.
How they work
A tax refund loan – otherwise known as a refund anticipation loan (or RAL) – is essentially a loan designed to enable taxpayers to get their hands on any expected refund a little earlier, without needing to wait for the bureaucratic delays that inevitably occur due to the time it takes to process the applications submitted by millions of people during tax season. These loans will typically provide successful applicants with short-term credit, based on any refund that is expected to be paid out.
Most people who apply for such an advance will do so in the days or weeks prior to when they would expect to receive a tax refund. Rather than running the risk of being unable to pay bills or meet any of life’s other essential financial commitments, a tax refund loan is seen as a great way to prevent unnecessary financial hardship. Likewise, for people who need the money for a big financial purchase – without having to wait for a refund to be paid out – this kind of advance can enable people to use their money that little bit sooner.
Who uses tax refund loans?
Whilst there is nothing to stop anyone from applying for such a loan, they are primarily used by low-income individuals. Ultimately, for those who have bills and other essentials to pay, but might face limited options when it comes to being granted credit, a tax refund loan can a much-welcomed way of expediting a slow and, at times, slightly uncertain process.
Of course, whilst many people who use such loans effectively rely on the expectation of extra money come tax season – and might need to use a refund anticipation loan to address urgent financial demands – others simply use them as a convenient and relatively easily accessible form of borrowing. In essence, some people like to think of the loans a bit like a piggybank, providing quicker access to funds so that they can have a splurge.
In fact, many people, especially those who find they struggle to save money on a regular basis, rather like the idea of using tax overpayments as a way of putting aside money. Rather than having the temptation of money sitting in a bank account, waiting to be spent, for some people it is simply easier to pay the extra tax throughout the year, before looking forward to a nice bonus when it comes to preparing their tax application.
How has the market changed in recent years?
Changes to the way the market was regulated meant that traditional lenders opted to change their approach to such loans, with many banks ultimately leaving the market. Nevertheless, there is still significant demand for such loans, with various companies still prepared to offer those in need the chance to reduce the wait for much needed cash. For example, it’s often possible to find a tax preparer will provide these sorts of lending services.
How to apply for a loan
The precise nature of the application process can vary, depending on the method you use; however, many people will use a tax preparer to help them complete the necessary paperwork, as well as preparing any loan requests. Once the process is complete, and an application has been accepted and approved, the recipient will typically receive any loan as a direct deposit into a relevant account. This loan can then be paid off as and when any tax refund has been distributed.
