Among the many types of credit products the market offers right now, tax refund loans stand out as more unique. The ease of repaying them – at least on the surface – is a major enticing factor for many borrowers, and tax refund loans have gained strong popularity in many areas as a result of that. However, many people often miscalculate the exact conditions of those products, and end up wasting a lot of their money without even realizing it.
That’s often made worse by the fact that tax refund loans are typically directly marketed to people with a predisposition towards impulse purchases and other similar behavioral patterns. In the end, a tax refund loan is not a bad product by default, but it does have a few points that you need to consider very carefully.
Do You Need the Money Now?
The most important one is whether you really need that money straight away. A tax refund loan is, in the end, borrowing from your own money. This means that you end up paying fees and possibly interest on money that you’re already supposed to have in the first place. You’re only paying for the convenience of having it earlier than other people. And if you really do need that money right now, that’s often a good option.
But if your definition of “need” is related to a new luxury purchase, you should probably hold off on taking out that loan. Sure, you’ll get your money now, but once the novelty of your new purchase has worn off, you’ll be stuck with the realization that you’ve actually lost some of the money you were going to have.
Are You 100% Sure About Your Tax Return?
There’s also the fact that many tax refund loans are based on estimates, but in cases where there’s a difference, the burden falls on your shoulders. If your actual tax return comes out at a lower value, you’ll still be stuck paying off the original value of the loan. After all, it’s not the creditor’s fault either, but they’re the ones who gave you money out of their own pocket in the first place.
As a result, this means that you should work with a good accountant to ensure the accuracy of your tax return, and to know what your safe limits are. But if you’re going to go in that direction, is all of this worth it in the first place? If you can afford to have your tax return done by a professional accountant, then you’re probably not the kind of person who needs a tax refund loan either.
Can You Bear the Extra Costs?
Some people rely on their tax returns quite heavily. If you’re in this category, then you might want to think twice about a tax refund loan. As we said above, the bottom line with this type of loan is that you end up with less money than you originally would have. Sometimes you may not care about that – like if you just need some quick cash to cover an emergency expense, and you are not too concerned with losing a percentage of your return along the way.
In other cases though, taking out a tax refund loan can be the deciding factor in whether you can make ends meet next month. You need to carefully weigh down the pros and cons of getting yourself into this kind of situation, and keep all details about tax refund loans in your head when putting down your signature.
Have You Looked into Alternatives?
Remember that there are usually other options available too. A tax refund loan is a loan in the end, and there is no shortage of similar products on the market if you look carefully enough. Sure, not all types of loans will allow you to get your hands on your needed money as easily as this one, but they might also come with better conditions that will not put such a strain on you financially. For example, an ordinary personal loan might be easier to repay over the same period of time, giving you more financial freedom.
Borrowing from people close to you is also an option, even if you don’t want to admit that to yourself. It’s not always pleasant to have this conversation, sure – but it’s also better to know that you’re not squandering the potential of your tax return. Plus, if it’s just a one-time thing and you don’t see yourself needing this kind of urgent money in the near future, you really don’t have any reason not to go for that. People tend to be more understanding than you might assume, and not having to deal with a loan is always the better option when it’s available to you.