A tax refund advance is similar to a payday loan or a refund anticipation loan. IN essence a tax loan is a short-term consumer loan that is secured through the individual's expected tax refund. Over 75% of tax applications are met with tax refunds, meaning the federal government supplies the taxpayer with funds to make up for the taxes that were paid throughout the taxable year.
All workers or employees fund government programs and pay government taxes every pay cycle; the government withholds salary and income every pay period. If the amount withheld exceeds that taxes owed, a tax refund is sent by the government to counteract the imbalance. Therefore, tax refund advances utilize the expected tax refund (which is collected after tax day on April 15th) to supply the individual with a lump sum before tax day.
A tax refund advance is designed to offer the borrower quicker access to the funds; waiting months to receive a tax refund can cripple an individual who has mounting debts or expenditures. As is common with most loans, a tax loan has a fee attached. Although tax refund advances are not attached with interest payments, the fee associated is a flat rate that is to be paid upon the obtainment of the loan.
To simplify, tax refund advances are secured loans, that use an individuals expected tax refund as collateral. The loan is supplied to the individual before they obtain their tax refund.