iQuanti: As the end of the year approaches, people start looking forward to their tax refunds. Many use these refunds to restock their emergency savings, invest, make big purchases, and travel. But the IRS can take a long time to get your refund to you, even if you sign up for direct deposit. If you need the money faster, you may have considered a tax refund loan. This article will explain how tax refund loans work and their benefits and drawbacks. Then, we'll dive into a few tax refund loan alternatives for your consideration.

How does a tax refund loan work?

Tax refund loans let taxpayers who qualify for a tax refund borrow against that refund. After filing your taxes with a tax preparer, you can apply for one of these loans with no credit check. If approved, they're typically disbursed to you via prepaid card or check within 24 hours of filing your return. 

You don't repay these — instead, the lender opens a temporary bank account and tells the IRS to deposit the refund into it. They then take the loan amount plus fees and tax prep costs out of the refund before paying you the remainder. These loans are often interest-free. However, you may owe a fee, depending on the lender or tax filing service you work with.

Tax refund loan alternatives

Tax refund loans can be hard to compare since you can often only get one from your tax preparer. They're also fairly costly in some cases. Plus, there's always the chance your tax return has an error that, when corrected, reduces your refund. You may owe money if you borrowed more than your correct refund. So, if you need your refund fast but don't want a tax refund loan, consider these alternatives:

1. Cash advances

Cash advances are fast, small-dollar loans that you can use to cover expenses until your next payday. Many lenders have less strict requirements and will consider factors like your income and current debts in addition to your credit score. This means you can still get this type of loan with poor or fair credit. 

If approved for a cash advance, you can often get the funds as soon as the same day you apply. Then, you'll repay what you owe plus interest in two to four weeks. You can also roll over the loan for an additional fee if you can't repay.

2. Installment loans

Installment loans let you borrow large lump sums and repay them in fixed monthly principal and interest payments. These tend to offer better interest rates and are easy to budget for, thanks to their predictable payments.

Plus, installment loans have longer timelines. This lets you borrow more and spread it out over a longer amount of time in case you need more than your tax refund amount. There are installment loans available to borrowers with a wide variety of credit scores and histories.

3. Title loans

If you own your car outright, a title loan lets you borrow against your vehicle's title for a quick loan. Lenders appraise your vehicle, verify your income, and then offer you a loan worth 25% to 50% of your car's value. You can then get your funds that same day and continue driving your vehicle during repayment.

Consider a loan while you wait for your tax refund

Tax refund loans make it easy to access your money ASAP if you need it quickly. However, they can come with fees, and it's hard to compare options. Luckily, if you don't want a tax refund loan, there are plenty of alternatives. 

Cash advances are one of the fastest short-term options for anyone, whereas title loans could be more suited for people who own vehicles outright. Installment loans may work well for people with larger refunds or who need to borrow more and want fixed payments. Whichever option you choose, make sure you budget for the loan. This will help you minimize costs and financial stress while allowing you to take advantage of the extra funds.