Pros and cons of a tax refund advance loan

While Uncle Sam expects prompt payment, he doesn’t always pay tax refunds as quickly. If you’re expecting a refund but don’t want to wait for the IRS to deliver, a tax refund advance loan may be the answer. Just like any loan, tax refund advances have pros and cons that you should consider before agreeing to one.

What is a tax refund loan?

A tax refund loan lets you borrow cash based on your expected tax refund. You receive cash now and repay it when your refund arrives. Because these loans are secured by your expected refund and repaid quickly, they usually have no fees. Interest rates are typically lower than most types of credit or loans because your refund serves as a guarantee.

How does a tax refund advance loan work?

Tax refund advance loans typically are offered by tax preparers. You may need to pay the preparer to complete your taxes to apply for one.

There are a couple of different types of refund advance loans. One is a loan you can get before filing your taxes. The second is one you get when you file your taxes. If you take the loan before you file and there’s no finished return with an expected refund, a refund advance will require you to pay a relatively high annual percentage rate (APR) to compensate the lender for the increased risk. Once you’ve completed your return and it shows a refund is due, no fees are usually charged.

You typically cannot borrow all your expected advance. Tax refund loans generally are available in specific increments or as a percentage of your refund. Refund loans usually range between $100 and $4,000.

Although some preparers will deposit the loan funds into your existing bank account, many use temporary bank accounts or prepaid debit cards. Repayment options vary, but some major tax preparation services offer the option for automatic repayment. When it arrives, the loan amount would be deducted from your refund to retire the loan, and you would be paid the difference. Alternatively, sometimes you’re allowed to set up a repayment account or specify an existing account for payback.

The amount you receive is based on the amount of the expected refund, which serves as a sort of collateral. But you won’t be able to borrow the full amount of your refund because tax preparers withhold a portion in case the IRS finds errors in your return. Finally, you’re limited to the loan increments offered by your tax preparer.

Let’s look at a practical example. Let’s say your preparer offers loans in $250 increments up to $4,000 with a maximum loan amount of 50% of your refund. If you had a $700 refund coming, half that would be $350, but the most you could get would be $250 based on the increments offered by your preparer.

Where to get a tax refund advance loan

Tax preparers and filing services both often give advances on tax refunds. You can search online or ask your preparer. Many of the major players in the space offer an option. It’s important to compare providers. See what kind of APR they charge, and make sure you’re aware of all possible fees. Some charge a fee to deduct from your return. There also may be fees unrelated to the loan, like e-filing.

How to get a tax refund advance

If you’re going to a brick-and-mortar tax preparer, you can ask about their refund advance policies in your tax prep appointment. If you’re using an online service, an advance loan will be an option near the end of the workflow, likely just before you file.

Because the loan is guaranteed by your expected refund, there’s no qualification process like with a traditional installment loan. The lender may or may not check your credit and it likely will have no effect on your credit score.

If you’re preparing your taxes online, you may be able to figure out what your refund will be and compare loan terms and fees before you file and accept a loan.

Pros and cons of tax refund loans

In the following sections, we’ll go a level deeper on the advantages and disadvantages of tax refund loans.

Pros

• You can get your money quickly. Some services tout disbursements as soon as the IRS accepts your return.
• No monthly payments. The loan amount usually is deducted from your refund.
• You don’t need a bank account. The loan proceeds are often provided via a prepaid debit card. When that’s not the case, they may set up a special temporary bank account or give you a check.
• Easy to get. Because it’s anticipated that you’ll pay off the loan with your tax refund, it’s easy for most tax filers to get a refund loan.
• There’s typically no effect on your credit score. If the lender checks your credit at all, it’s usually a soft check.

Cons

• You must use a tax preparer or service. You’ll have to pay someone to calculate and file your taxes if you want an advance loan.
• You may have a high interest rate. In addition to tax preparation fees, you may have to pay a relatively high interest rate, or other fees associated with the loan.
• You might have to pay more if your refund is smaller than expected. If your refund ends up being less than you borrowed, you will have to repay the difference. The fact that it’s only a percentage of your refund helps mitigate this, but it’s something to be aware of.
• How you receive your loan may be limited. The funds are often on a prepaid debit card or put into a special purpose account instead of by a check or paid to a personal account.
• Refund loan scams are common. People who are looking for a tax refund in a hurry may make enticing targets for scammers. Make sure you work with reputable preparation services with valid tax preparer identification numbers. You also can check their record on the Better Business Bureau. Be sure to check your tax return for accuracy. Refund loans give unscrupulous tax preparers the incentive to fudge your information to qualify for more credits and a higher refund. The IRS put out a report on the link between these refund options and noncompliance with requirements for the earned income tax credit.

Alternatives to tax refund loans

Tax refund loans usually are only available from mid-January to the end of February. If you wait until the deadline to file in April, it may be too late.

It’s also not ideal if you’re counting on it to fund a big project. According to IRS data last updated the week of April 4, the average federal refund amount so far in 2025 was $3,116. There are other loan options available to you if you need to borrow money.

Personal loans

With no collateral involved, personal loans are based on your credit history alone. You get the funding all at once and can spend it however you want. These can be good for everything from investment opportunities to home improvement and debt consolidation. Rocket Loans℠ offers personal loans of $2,000 – $45,000 with 3- or 5-year terms.

Because there’s nothing to secure the loan, personal loans tend to have fairly high credit score requirements. To give yourself the best chance of approval, work on reducing your debt-to-income ratio and correct any inaccuracies on your credit report.

0% APR credit card

As a means of attracting new customers, credit card issuers sometimes offer a promotional APR of 0% on balance transfers. If you’re looking to consolidate debt, transferring a balance to the 0% APR card can help you pay down existing debt with no interest if you do it during the promotional period. Just be sure you can pay quickly. If that promotional period runs out, credit card rates are some of the highest available.

Cash advance

When you take a cash advance, it’s a short-term loan against your credit card limit. While this can help you in a pinch, the interest rate on this is typically higher than the standard credit card rate, so it’s not to be taken lightly. You can check with your credit card provider regarding their rates for cash advances.

Personal line of credit

A personal line of credit works like a credit card with two stages. In the first stage, the borrower can use the credit line and makes payments on what they borrow. The only required payment during this time is the interest. Borrowing ends with the second stage, and the borrower pays off both the principal and interest. Like a personal loan, strong credit is preferred.

Wait for the refund

Sometimes the best action may be to just wait for the refund. According to the IRS, if you e-file, the anticipated payment time for a federal return is up to 21 days. If you send your taxes by mail, the process can take 4 weeks or more. Amended returns take up to 16 weeks to process. You can check the status of your refund online.

The bottom line: Be careful with tax refund loans

The potential of a tax refund and the idea of a cash windfall may tempt some into taking an advance to get access to the money sooner. But you must be sure you’re getting money back and be prepared to pay a tax professional or service. It’s not for everyone. Take the time to fully assess your options and whether this is the best way to meet your goals.

If you decide that a personal loan would make more sense for you, start the application process with Rocket Loans.