Fast tax refund loans are loans obtained without a credit check by using the expected IRS and state tax refunds as collateral, according to Money-zine.com. While such a loan provides the lender with almost instant access to the money, it comes with a high price.
Fast tax-refund loans, also known a state and federal refund anticipation checks and refund anticipation loans, come with high processing fees and exorbitant annual percentage interest rates, warns Money-zine.com. Such rates can range on a $3,000 loan from 40 to 177 percent, as calculated assuming that the time to receive a refund ranges from 11 days to seven weeks. In spite of such costly rates, the IRS has reported that in 2011, 18.3 million taxpayers took out fast tax-refund loans and paid between $550 million and $700 million in fees alone. The relative ease of applying for such loans after a tax refund has been determined, usually through the tax preparer working with a bank for this specific purpose, likely has something to do with these high numbers. Given that a taxpayer who files electronically can often have access to a tax refund that is deposited electronically into a taxpayer's bank account in as little as eight days, money experts often recommend alternatives to costly fast tax-refund loans.