Today there are a growing number of ways in which to get cash quickly based on personal income. These are generally referred to as payday loans because the concept is that workers are getting an advance on their checks that they pay back when they actually do get your their paycheck. Similarly, there are now also tax refund loans. The idea here is that individuals get a loan or advance based on their expected tax refund that is paid back when they receive their actual Internal Revenue Service refund. There are pros and cons to utilizing these loans.
The Pros of Tax Refund Loans
The top reason for taking advantage of a tax refund loans is to have cash to cover an emergency that has occurred. The emergency could cover a number of events, including a medical emergency. These days there are an increasing number of people who have no health insurance at all, as well as those who have high deductibles or limited coverage of some type. When an accident happens or illness occurs, a trip to an emergency room can be extremely costly. This makes the need for taking out a tax refund loan great and for some can be their only answer to paying off this debt or getting the care they need.
Then there are car breakdowns requiring costly repairs that owners simply were not planning on. A car accident, tire blowout, or other the need for a new battery are just three of the ways in which a vehicle expense could require a loan in order to allow the owner to continue using their car and get to and from work.
Another reason for needing an emergency loan could be a special occasion that is personally important to a person, but for which the increasing cost of living has prevented them from properly saving for. Being able to get a refund early can be a big help in handling these situations.
A second pro reason for taking out a loan of this type is having the ability to spend the refund now and not have to wait for the refund to be processed. Depending upon when a tax return is actually submitted and even based on how the return is completed, such as electronically filed versus sent through the mail, a return can take months to actually process and a refund check received. There is no guarantee date for the receipt, so having that money available for use now can be beneficial if there are expenses to be paid.
The Cons of Tax Refund Loan
The biggest argument against taking out an emergency loan on a tax refund is the interest rate. Many companies provide these loans, including several tax preparers, and they all charge some type interest rate. Unfortunately, the vast majority of these rates are extremely high, even if the loan recipient pays back the loan quickly.
Many believe the interest rates are unjustified and take advantage of the consumer who needs a bit of assistance. People in need of cash often do not consider the possible downsides to these loans. For example, what if something else occurs requiring unanticipated expenses and the loan cannot be paid back promptly? With the high rates, a person can find themselves in debt from the actual loan.
The pros and cons of a tax refund loan should always be considered.
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Filed Under: Tax Refund Loan Related