Tax Refund Loans Offer Fast Cash for Early Filers

Loans, Personal Loans
tax refund loans

If you need cash now while anticipating your tax refund, some tax preparation services, including H&R Block and Jackson Hewitt, are offering 0% interest loans with no finance charges. These are essentially free, short-term loans you can use now to cover your current bills.

In some cases, you can get the money within 24 hours. The loan is secured by your expected tax refund, and the loan amount is deducted from your refund. To be eligible, you must have your taxes prepared in an office, not online, and typically that means you’ll pay a tax preparation fee. You must be due a refund of a certain amount, which varies by company.

Anyone can apply for the no-interest tax refund loans, but they’re especially attractive to early filers who claim either the Earned Income Tax Credit or the Additional Child Tax Credit. About 30 million taxpayers claim these credits, and half of those file early, estimates H&R Block.

Many low- or moderate-income taxpayers who claim the EITC or ACTC count on their refunds for immediate expenses, but because of a new federal tax law, the Protecting Americans From Tax Hikes Act, refunds for early filers will be delayed this year.

» MORE: Why your tax refund could take longer this year

According to the IRS, refunds for early filers likely won’t hit bank accounts and debit cards until the week of Feb. 27, factoring in processing time and the Presidents Day holiday.

If you need extra cash before then, a free tax refund loan may help, as long as you don’t pay too much in related fees, like tax preparation fees or fees for a prepaid card. Think of those other fees as the actual cost of the “free” loan when deciding whether to apply for one.

Beware, too, of tax preparers who charge add-ons like “application fees,” “e-filing fees” or “technology fees,” the National Consumer Law Center warns. Report any problems with tax refund loans to the Consumer Financial Protection Bureau.

Two tax refund options

From Jackson Hewitt

“More than 450,000 individuals have pre-qualified” for loans from MetaBank offered through Jackson Hewitt, says CEO David Prokupek. Here are details of this no-interest loan, called Express Refund Advance:

  • Minimum tax refund amount: $500
  • Loan amounts: $200, $500, $750, $1,000, $1,300
  • Time to funding: Within an hour after approval if you choose to have the money loaded onto an American Express Serve prepaid debit card. If you want the loan deposited directly to a bank account, it will take one to three business days.
  • Requirements: You must have your taxes prepared at a Jackson Hewitt office, not online
  • Average tax preparation fee: $230

» MORE: NerdWallet’s review of Jackson Hewitt’s tax software

From H&R Block

At H&R Block, most often, “clients who are approved would have their funds the same day they apply,” says H&R Block spokesman Gene King. Here are details of H&R Block’s no-interest Refund Advance loan from MetaBank:

  • Minimum tax refund amount: $1,000
  • Loan amounts: $500, $750, $1,250
  • Time to funding: Same day, in most cases. The money is loaded onto an H&R Block Emerald Prepaid MasterCard.
  • Requirements: You must have your taxes prepared at an H&R Block office, not online
  • Average tax preparation fee: Varies depending on the complexity of the tax return

» MORE: NerdWallet’s review of H&R Block’s tax software

This ‘free’ loan can still cost you

You may remember past versions of quick tax-time loans that came with notoriously high fees. Those were regulated out of existence in 2012.

The main worry with current versions of 0% tax refund loans is how much you’ll pay in tax preparation fees to be eligible for the loan. Tax preparation services can range in cost from zero to hundreds of dollars, depending on the complexity of the return. For example, services at Jackson Hewitt start at $48; the average cost is about $230.

Jackson Hewitt and H&R Block both offer free tax preparation for customers filing a simple 1040EZ. “Yes, those who file a free federal Form 1040EZ in a participating office and meet all requirements can apply” for the free tax refund loans, King says.

Low- to moderate-income filers in particular have many ways to file their taxes for free. You can get IRS Free File software, available to those with incomes of $64,000 or less, or check out volunteer programs from organizations like AARP, the Accounting Aid Society and United Way. “I’d urge people to take advantage of free services,” says Marshall Hunt, director of tax policy and advocacy at the Accounting Aid Society.

» MORE: NerdWallet’s best free online tax prep software

Running the numbers

If you file a Form 1040EZ in a tax services office for free, then securing a tax refund loan poses virtually no risk and zero cost. But say you’re charged Jackson Hewitt’s lowest fee of $48 to be eligible for a $500 one-month tax refund loan. Consider that fee equivalent to an annual percentage rate of 115% for the loan. In other words, the loan is not free when you factor in the cost of tax services.

If your tax prep bill is $230, that $500 loan could be viewed as having an APR equivalent to 552%. That’s even higher than the median 391% APR charged by notoriously expensive payday lenders, according to CFPB findings.

A significantly cheaper option would be to seek a payday alternative loan from a credit union. PALs were created in 2010 and are regulated by the National Credit Union Administration. They have a maximum annual percentage rate of 28%, with application fees capped at $20.

The National Consumer Law Center warns consumers in a press release that “one risk is that tax preparers might charge more in their tax preparation fees to ‘no fee’ [refund loan] borrowers.”

In addition to tax preparation fees, tax refund loans may also come with prepaid debit card fees. H&R Block, for example, provides its loans on the Emerald Prepaid MasterCard. Though the card itself is free, and it’s free to make purchases with it, there are costs associated with some transactions.

Mobile or online bill pay with the Emerald card costs 95 cents per transaction, with extra costs for expedited payments. Withdrawals at MoneyPass ATMs are free, but if you use out-of-network ATMs, you’ll pay $3.00 — and there may be additional fees from the ATM’s owner. If your ATM transaction is declined, that’s a $1.50 fee, and if you don’t use the card for two months, you’ll be charged an inactivity fee of $4.95 a month.

Jeanne Lee is a staff writer at NerdWallet, a personal finance website. Email: jlee@nerdwallet.com. Twitter: @jlee_jeanne.