Last-minute filers are working to file their tax returns by the 2021 tax year deadline of Monday, March 18.

Some tax firms or other lenders may offer an opportunity to have earlier access to these funds in the form of a tax refund loan, also known as an anticipated refund loan.

Regulators and advocacy groups have warned of the potential downsides of the loans, particularly those that come with high fees or high interest rates. Personal finance experts generally do not recommend them.

Here’s what you need to know about the loans this tax season.

What is a tax refund loan?

Put simply, a tax refund is an advance on your tax refund, said Matt Schulz, chief credit analyst at LendingTree.

One way to borrow against your tax refund to get instant access to the funds is to borrow the amount from a lender and give them the refund when you get it from the IRS.

“Unlike many loans, it’s not necessarily something to look around for,” Schulz said.

Tax refund loans are typically offered by a tax consulting firm, Schulz said. You won’t find them at your bank.

What are the pros and cons?

The advantage of an upfront loan is pretty simple: you get instant access to the amount of your refund instead of waiting the days or weeks it could take to get the money from the IRS.

The disadvantage? “It can end up costing you,” Schulz said, in the form of interest or fees.

Some tax firms will offer you a no-fee tax refund loan, Schulz said. But you have to pay the company to do your taxes for you.

“Even with a 0% loan, there’s probably still going to be a minimum amount you have to pay to prepare your taxes,” he said. “So if you’re already planning on getting your taxes done, it might not be that big of a deal.”

Teresa Murray, director of the Consumer Watchdog Office at the US Public Interest Research Group, says the costs can outweigh the benefits.

“We really urge people to avoid any type of prepayment loan,” she said. “Anything you rent out for a refund that you haven’t received yet…it’s got bad news on it.”

The North Carolina Consumers Council warns anyone considering a loan against their tax return to “think again.”

“While it may sound tempting to get a tax advance, these loans are actually tax return payday loans and you should avoid them if possible,” the Council’s Council said on its website. “The full amount must be repaid like any other loan, even if your repayment is less than expected or you end up with no repayment at all.”

When can I expect my refund?

The IRS issues more than nine out of 10 refunds in less than three weeks, according to its website. Taxpayers who filed electronically will receive their refunds faster than those who submitted their tax forms by mail.

And the department is getting faster at issuing refunds, Murray said. Now some electronic filers can expect to see the money in their bank account in just a few days.

“If you’re filing a tax return electronically, you can usually get your money in four to six days,” she said.

North Carolina taxpayers may be slower in receiving their state tax refunds, but the upside is that a delay in accepting tax returns this year is due to a legislative cut in the individual tax rate.

Should I Consider a Tax Refund Loan?

Schulz said if you really need the money — and read the terms carefully — a tax-refund loan can be an alternative to riskier ways to fund your bank account.

“Emergencies happen: job loss, medical emergencies, whatever the case,” he said. “(In this case) there are worse things you could do than a tax refund.”

And assuming you got your taxes right, he said, a tax refund loan is a secured loan with your actual refund serving as collateral. That makes it significantly less risky than, say, an unsecured payday loan with a sky-high interest rate.

Murray, on the other hand, is by no means warning about the loans. She suggests holding out until you get your rebate, especially since it might not take very long if you’ve submitted an e-registration and set up direct deposit.

“If you’re that short on cash… find a friend or relative you can borrow money from for a few days,” she said. “Don’t go down the path of anticipatory refund loans because they’re just ridiculously expensive … You’re paying for your own money.”

While this year’s tax filing season ends without the threat of a government shutdown, it could make those loans even riskier going forward, according to the North Carolina Consumers Council.

“The frequent federal government shutdowns could make this type of loan more attractive if you want your refund quickly, which can complicate matters. Remember that a delay in paying out your refund is not taken into account by the lender and does not relieve you of the obligation to repay the loan on time,” the lender’s website reads.

Schulz added that large tax firms — like H&R Block or Jackson Hewitt — only accept tax refund loan applications for a set period of time, often between December and February. For these applicants, the loan application window may already be closed.

And Murray had one piece of advice for those who want to become one: start earlier next year.

“If you’re in a hurry, don’t pay attention,” she said. “Any time you have the words ‘not careful’ and ‘IRS’ in the same sentence, that’s not good.”

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