Should You Get An Advance on Your Tax Refund? Maybe …
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We have all seen sexy Jon Hamm on the new H&R Block tax refund commercials. His yumminess claims that you can get up to a $3000 advance on your tax refund.
Sounded fishy to me, so I decided to look into this notion and see what it is all about. Here is the skinny …
Tax preparation companies, such as H&R Block and Jackson Hewitt both have tax refund advances. Each has varying amounts and conditions for getting your refund super early. I scoured the resources, read other blogs and read all the fine print for each company. Both are available in-store only, no advances can be applied for or received online.
You can get an advance on your tax return up to $3000. You simply have to have H&R Block prepare your taxes for you and apply to get your money early – in as little as 24 hrs! If approved, you can get an Emerald Prepaid Mastercard with your funds. This card, of course, comes with fees. You even have to pay up to $3.00 for each ATM withdrawal – not including that particular ATM’s fees. Should you choose to get your money over the counter expect to pay a $35 fee! You can find a complete list of fees on H&R Block’s website.
Jackson Hewitt also offers a similar cash advance program. They feature loans in amounts $100, $200, $500, $750, $1000 and $3200. This already seems like a better deal, no? You can get up to $200 more than H&R Block offers. The catch? Their credit card, American Express Serve, also has fees associated with it. Jackson Hewitt’s website states that “this is a no fee tax refund loan. No late fees. No document fees, no origination fees, and no interest charges!” Both H&R Block and Jackson Hewitt’s fine print also states that “fees for other optional products or product features may apply.”
(You can also file your own taxes with programs such as TurboTax Software.)
Is It Worth It?
After reading other blogs and articles online and having read the fee schedules on the tax preparation services respective websites, I was convinced this was just not worth it. To get your money a couple of weeks prior and have to pay all of these backend fees just seemed crazy to me. I was all prepared to write my piece with a resounding no answer when I found out that one of my friends personally applied for and received an advance loan on his taxes. So I interviewed him as an actual client, not a self-pronounced online finance expert.
So I asked him how much his tax preparation services cost him. His response was $57 to file for the State and the Federal was included. He received his money ($2,470 total) within 24 hours on the Mastercard. He had to pay an additional $39 for this rapid refund. I was intrigued, so I pressed him for more details. It only cost him $96 and he got his money within 24 hours. There were no additional fees, surcharges or extra products he was required to purchase.
Even if he found an ATM that dispersed $500 at a time, he would need to withdraw 5 times for a fee of $3.50 plus whatever the ATM operator fees were. Why should you pay all those extra fees? Well, wait let’s do the math here. Say the ATM operator fees are $2.00 per transaction. That means he is paying a total of $5.50 in fees each time he withdraws his cash. That’s $27.50 in ATM fees. Add that to his $96 preparation and rapid refund fees and he paid $123.50! At first, that seems like a lot. Then I realized my accountant charges more than that and I have to wait to get my return, whereas he already has his money. So is this Tax Advance really so bad?
Well, unless there are hidden fees that will come out of the woodwork or his return is actually for less than he was given … but then H&R Block also guarantees their work or will pay any resulting penalties and interest.
Is This Just Another PayDay Loan?
Originally, I associated this new Refund Advance program as just another gimmick, similar to the Refund Advance Loans of days past or even the awful Payday loans that can carry exorbitant interest amounts.
Side note: According to PayDay Loan Consumer Information, “the average loan typically cost 400% annual interest (APR) or more. The finance charge ranges from $15 to $30 to borrow $100. For two-week loans, these finance charges result in interest rates from 390 to 780% APR.” What the … ?! Definitely, do not ever do this!
A few years ago, RAL loans were offered with high-interest rates and fees. They were marketed toward lower income earners who were believed to need this money as a means to live. Jackson Hewitt did a recent poll and nearly 50% of millennials stated they intended to use their returns to pay off Holiday debt.
As with everything financial, do your homework. Is it better to have an emergency savings account? Of course. But let’s face it, in these difficult times many people sadly cannot afford to have an emergency fund.
Many people face financial hardship at some time in their lives. Sometimes we all need a little help. Maybe a Refund Advance is ok for your circumstances. But be wary of any potential hidden fees and/or discrepancies with your actual returns. Remember my favorite financial rule – never pay interest if you can avoid it!
If anyone has any experience with this new Refund Advance or any advice, please feel free to comment. I always want a Penny for your Thoughts!