What to Consider Before You Take an Advance on Your Tax Refund

Most US citizens rely on tax refunds to help them pay their debts off thus they are highly anticipated for. In the wake of the current hardships, that almost everyone is going through applying for a tax refund may look like a wise choice. The question that remains unanswered is what is the right decision to make? A robust number of consumers have been using financial products that would earn them an advance in tax refunds.

According to a report done in 2018 by National Consumer Center, it shows an increase for money spent on refund anticipation loans (RAL). A higher number is also observed in the refund anticipation checks (RAC). Transfers like this act as a loan of the tax preparation fee, which does not increase one’s tax refund.

The new anti-fraud regulations that took effect from last year are the root cause for the increased demand in advance of tax refunds. The regulations caused a major delay in the refunds to the consumers claiming earned income tax credit or the additional child tax credit. With the recent government shutdown, tax experts foresee the generation of even more interest both from the affected workers who are running low on financial resources. The other affected lot is of consumers who worry about refund delays tied to the shutdown and implementation of the new tax rules.

According to the Internal Revenue Service (IRS), the income-tax filing season that was set begin late January and pay consumers despite the shutdown. However, doubts have been expressed as to whether the season will end without a hitch.

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Advocates for consumers do not vouch for refund advance products. This is because of the high costs and potential frauds attached to them. Since the IRS issues refunds quickly according to its set time limit (less than 21 days), it is better to keep off these products.

The situation has worsened this year due to the government shut down. The shutdown soiled all the advice given in the past by corporations concerned with credit counseling. Many consumers who are living on the edge rely on tax refunds. Below are tips on how one can sail through this field.

Analyze borrowing costs

If one is relying on a refund advance product, you should carry out a thorough investigation on the price tag at various tax preparers before setting a tax preparation visit. The current refund-advance products have a robust difference than those that were available a while back. Consumer advocates have however termed them as “high-cost, high-risk loans”. The national tax chains have been distinguished for the tendency of promoting their offerings as free advances.

The mere fact that a refund-advance product does not present itself as either a loan or doesn’t have an interest rate attached to it, does not qualify it to be free. Before settling for a particular refund-advance product, one should read the terms and conditions as well as ask many questions. One should carry out a rigorous assessment of what the cost is. It only takes a single bad decision for one to be in a debt cycle. Despite there being a shutdown-related refund delay, it does not guarantee that one should not repay loans within the agreed period. Furthermore, one should not keep the lender from tacking on interest or fees for those extra days the government has kept you waiting.

Compare other options

Once one has a clue on the range of cost for the refund-advance products, comparing the prices would be the wisest thing to engage in. This helps one to know which one favors him. Majority of the community banks and credit unions offer small-dollar, short term loans; which are terms that may be less expensive and friendlier generally. Consumers with good credit may find that personal loans or zero-percent credit card offers are worth assessing too.

Beware of frauds

There has been a bountiful of suspect practices related to refund-advance products. Hackers and other malicious individuals can steal one’s personal information or tax refund. One might end up with a penalty-laden tax headache to figure out.

One should deal with a well-known tax preparer and check credentials and references before you hire them. The signs that one is engaging with a deceptive tax preparer would include one who charges fees based on the value of your refund, or who says your refund will be deposited in their bank account. Fraudsters have tried to use falsifying elements of a return to maximize the refund; an example is claiming head of household status or an education credit when you are not entitled to.

One has to be alert before making any decisions related to tax refunds. Definitely, this could save them from being in unnecessary debt. Feel free to get in touch with us if you need more information about tax refunds.