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Refund Anticipation Loan
When it comes times for your taxes to be done many people will opt for a refund anticipation loan.? Often time?s people will take these loans without knowing what they are and exactly how they work.? This can spell trouble for the borrower in the long run.
How It Works
The way this unsecured loans works is that a person will have their income tax return completed and has it submitted.? At that time a lender will give the person the option of receiving a loan that will be repaid when the person receives their tax refund.? Most of these refunds are made through tax preparation companies such as H&R Block, Liberty Tax Services and Jackson Hewitt.? There are also many other companies that offer this service.?? Many taxpayers use the loans without realizing that there are many risks involved in this process.? People will think that they are getting their refund early and quickly when in reality they are actually taking out a loan.
Risks Involved
The biggest risk involved with a refund anticipation loan is one that many people do not know about.? If the tax return is submitted and rejected by the Internal Revenue Service the taxpayer will still have to pay the loan back to the lender and they will also have to pay the interest on that loan.
The reason behind this risk is that until the Internal Revenue Service approves and accepts the tax return it is not official.? The person whom does your tax returns does not approved it they just prepare the return.? The IRS must sign off on it to make it official.
This approval process can take several days once it is submitted.? Even if it submitted electronically it can still take a little while.? Most lenders will be willing to make these loans because the majority of the tax returns will be accepted.? Most will not be rejected.
However if the return is rejected the taxpayer will still have to pay off the loan.? If they are unable to pay back the loan it could affect the borrower?s credit rating and this can hurt their ability to borrow any money in the future.? Often times the tax service company will set it up where the future tax refunds will be used to pay the refund anticipation loan.
Conclusion
It is highly recommended that if you do not need the money right away to avoid receiving a refund anticipation loan.? For most of us tax payers it is probably a better financial strategy to wait until the money comes.
Because everyone files his or her taxes electronically now the time frame to receive the money is usually pretty quick.? If you wait to receive the money without the refund anticipation loan you will also save your money on interest and therefore you will receive the entire refund amount.? This means that the government will not get anymore of your money than they have already received.
Most often a taxpayer will find that a tax refund anticipation loan is not the best financial solution for them.? If you have questions about how these loans for people with bad credit work you can ask a tax specialist.
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Source: http://www.askinz.com/blog/how-refund-anticipation-loan-works
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