Many taxpayers who use accountants or tax preparation services to file their tax returns for them are frequently given their money in two different ways when they file electronically: The “tax refund loans” or standard “rapid refunds”. Tax refund loans are becoming more difficult to find and qualify for. You may be wondering which of the two of these is better? Why would I choose one over the other? Which one should I do and which would should I not do? You may be surprised at the answer.
E-Filing Tax Returns And Tax Refund Loans
Some people call Tax Refund Loans “grasp lending”. This is because the professional tax preparer or tax service firm actually loans the money out through means of their affiliation with a financial lender institution who is the actual lender that offers and sponsors the specialty tax loan product through the tax service. The potential tax refund loan candidates are within the tax preparers grasp since they are already being provided other tax related professional services. Usually the tax preparer or accountant acts as an administrator on behalf of the actual lending company as a way for the tax preparer to add to their revenues and the lender benefits by having a tax professional provide contract oversight. The tax preparation service makes sure the tax return is accurate, legit and that the taxpayer meets all the requirements for the “tax refund loan“. During the loan application and completion of the tax refund loan process one of the things you will end up doing is that you will assign and transfer your claim to your pending refund money over to the lender. The lender is then repaid with the anticipated IRS refund money.
When the tax preparer completes your return and electronically sends it to the IRS, they are counting on the fact that you will actually receive that particular amount of money. Somewhere around 10% of taxpayers choose “Tax Refund Loans” so that the money can be in their pockets almost immediately rather than wait 10 to 18 days for the IRS to issue the standard “rapid refund” if you file electronically and do not obtain a tax refund loan.
However, there is a fairly high cost related to tax refund loans. Although it will only be about 10 to 18 days before the tax preparer receives the taxpayer’s refund money, they will charge a high rate of interest and or fees for this short term personal loan. Although the cost is relatively high, many taxpayers obviously think it is well worth the expense.
It has been estimated that Americans have been paying around $500 million each year for a quick loan to put their tax refund money back into their pockets almost immediately rather than wait. Unfortunately, lower income people tend to be the ones to go for these loans because they have the greatest need to have the tax refunded immediately. It appears that the tax refund loan program was created around 1975 and is said to highly target those who qualify for and receive the “earned income credit” because it tends to create fairly high refund amounts. This increases the amount of interest that is charged. Yes, it may seem silly for someone a relatively high price to have their money right now, but it happens on a regular basis. When someone needs the money quickly to pay rent or be evicted, or to handle other financial emergencies, they are very willing to pay what it costs and rightly so, for a tax refund loan.