Watch Out for Rapid Refund Tax Loans


Hello and welcome to Your Money 2.0. I’m Thomas Fox, community outreach director
of Cambridge Credit Counseling. Well, tax season is upon us again and it’s
a safe bet that it’s the least favorite time of year for many Americans. As stressful as the filing process can be,
we breathe a sigh of relief when we receive a refund. For some, those funds are critical to meeting
immediate goals. However, there can be a huge cost if we take
out a refund anticipation loan. Refund anticipation loans have been under
scrutiny by the IRS and others for some time. So much so that 2012 may be the last year
many financial institutions will offer these products. Let’s take a look of what you need to consider
when faced with the option of taking one of these loans. A refund anticipation loan is a short-term
loan generally in place for just a few weeks which is secured against your refund. Many tax preparers have advertised that filers
can receive their refund the same day as they submit their taxes, which is one of the reasons
these loans landed on the IRS is radar. What filers are receiving is not a refund,
but a loan based upon their anticipated return. The refund anticipation loan hinges on the
estimate made by the tax preparer, not the statement from the government. This can put you in a bad spot if your refund
doesn’t come through as expected, for instance the IRS can seize a portion of or your entire
refund for a variety of reasons including back taxes, delinquency loans, child support
arrearages or other wage enforcements. Your preparer can also miscalculate your return. If your refund is not in the amount you anticipate,
you now have a loan to deal with. Every year some people find themselves in
the unfortunate position of having to take out a series of successive loans, piling up
hundreds of dollars in fees because they didn’t have the refund they thought they’d received
and the loan has come due. This leads us to the second thing you must
consider, the actual cost of the short term loan. Some experts feel that applicants haven’t
been adequately informed about the true cost of their loan. The IRS and regulatory bodies have strongly
advised against rapid refund loans because of the high rates associated with these products. Depending upon the lender, interest rates
can fluctuate between forty percent and seven hundred percent of the refund. Granted, some people may feel that the costs
associated with their loan are acceptable. They obviously need to cash immediately and
the quest may not be an object. I would suggest that these people need to
consider not only the interest rate on their loan but they also need to think about the
opportunity cost. An opportunity cost is the cost of an activity
measured against the value of the next best alternative. For example Republic Bank and Trust Company,
one of the remaining rapid refund lenders, offers a loan of $1,500 for a fee of 61 dollars
and 22 cents which, if annualized, translates to 149 percent interest. Sure, you may want some of that money now
instead of waiting 14 days but should you spend sixty one dollars of your own money
to get your refund now. That’s one expensive ATM transaction. You may decide like I would to wait two weeks
and put that 61 dollars you save with some of your bills or better yet into a savings
account. If you need your refund quickly consider some
of these options, first get your taxes done sooner rather than later. One of the easiest ways to complete your taxes
in a jiffy is by using an online service like IRS’ Free File. You can use the site to file your federal
taxes for free providing your gross adjusted income is less than 57,000 dollars. Some online providers also help you prepare
your state returns, though there may be a nominal fee associated with that portion of
your return. If you e-file and request order deposit into
a bank account you can have your return in about a week. If you don’t have a checking or savings account,
which you should, you can have your refund applied to a prepaid card. You can have your refund deposited on any
prepaid or payroll card you already own. However, beware of cost if you’re considering
purchasing a prepaid card. There are a variety of cost with fluctuating
fees, be sure to compare products. CreditCards.com has a helpful prepaid and
debit card search tool located on their homepage that can help you find the right one for you. Until next time, I’m Thomas Fox for Cambridge
Credit Counseling. Happy tax season everybody and many happy
returns!

2 comments on “Watch Out for Rapid Refund Tax Loans”

  1. InstTaxSolutionsLLC says:

    Rapid refund tax loans can be a great resource to those taxpayers who require their refund quickly. That said, these loans can be extremely expensive.

  2. jamaynex says:

    Most loans no longer charge interest or fees at all

Leave a Reply

Your email address will not be published. Required fields are marked *