For many Americans, filing federal income taxes means getting a refund. The average tax refund, according to the IRS, was $2,827 in , the average was over $2,500). Taxpayers often rely on this money to boost their retirement savings or save for a home. But what happens when you need the money before the IRS sends your refund? You may want to consider a tax refund loan. It functions like other short-term loans, but the loan amount is based on your refund amount. Refund advances are also a popular alternative. A financial advisor can help you budget for unexpected expenses and offer advice on dealing with them when they arise.
What Is a Tax Refund Loan?
A tax refund loan is officially known as a refund anticipation loan (RAL). It is a loan that a lender makes based on the amount of your federal income tax refund. Lenders are often small financial institutions. This may require a little research on your part to make sure the lender is reputable. Many tax filing services will also offer you a tax refund loan after you file with their service.
Tax refund loans typically only last a couple of weeks – just long enough for the IRS to process your tax refund. The loan that you receive from a lender will have the value of your anticipated refund minus any fees or interest charges. You may receive the loan on a prepaid card, on a check or as an electronic deposit in your bank account. Some lenders only offer one of those methods while others may offer multiple options.
Once the IRS processes your refund, it will go directly to the lender. At this point, your loan is repaid and you made it through tax season. The only other thing to keep in mind is that if your refund is smaller than your tax refund loan, you will still need to pay the loan back in full.
How to Qualify for a Tax Refund Loan
Because tax loans do not have as much risk as unsecured loans, credit score requirements are usually not as restrictive. Your qualification depends largely on the amount of money that you will be refunded by the government.
Tax loan lenders will verify your identification, weigh your tax history with the IRS, and consider how much debt you owe. You should keep in mind that some lenders may also review your credit history. And if you want to pre-qualify as a candidate, you may need to provide your Social Security number, contact information, and the refund amount that you got for the previous tax year.
Reasons For and Against Tax Refund Loans
The most obvious reason to consider a tax refund loan is because you need money quickly and for the short-term. Maybe it’s February and you have a major bill coming up. Or perhaps your emergency fund isn’t quite big enough and you could really use the money from your tax 
refund. While the IRS issues refunds typically within 21 days after getting your return (and can take over six weeks for paper returns), some lenders could get you the money faster, depending on your refund option.
The people who most commonly receive tax refund loans are taxpayers who file early in the tax season and claim the Earned Income Tax Credit (EITC) or the Additional Child Tax Credit (ACTC). Under federal law, the IRS cannot provide tax refunds right away for people who claim these credits. For 2022, when you file your 2021 taxes, the IRS says that the earliest date you could expect get an EITC/ACTC refund will be the first week of March. So if you claim those credits, and are filing early, you may have to wait longer than usual.