Tax Refund Loans–A Bad Idea

26 Jan Tax Refund Loans–A Bad Idea

Since tax season is on hand, the media is full of ads touting tax refund or “refund anticipation” loans. “Get your money NOW!” “In today’s economic climate, can you afford to wait for your tax refund?”

Well, the easy answer is, especially in today’s economic climate you should not get a tax refund loan. Why not? It costs you, big time.

Tax refund loans are huge moneymakers for H&R Block and other tax preparers. Why? The interest rates and fees are staggering, despite the very low risk of default. How much do they make? According to the National Consumer Law Center:

New figures reveal that RALs [Refund Anticipation Loans] drained the refunds of 8.67 million American taxpayers in 2007, costing them $833 million in loan fees, plus over $68 million in other fees. In addition, another 11.2 million taxpayers spent $336 million on related financial products to receive their refunds.

How are these fees charged? First, there’s a “loan fee”–a charge for the privilege of borrowing money–ranging from $34 to $130. These fees are usually called “Refund Account” or “Bank Fees.” Some tax preparers charge “application,” “administrative,” “e-filing,” “service bureau,” “transmission,” or “processing” fees, which push the total even higher.

Then there’s the interest rate. These rates typically run from 50 percent to nearly 500 percent. And when you include the “loan fees,” the effective APRs range from about 85 percent to nearly 1,300 percent. That’s loan shark territory.

But things are tight, and you need the money now. You can’t afford to wait 60 or 90 days to get your money.

You don’t have to. According to the IRS, most refunds, particularly where you have the refund deposited directly into your bank account, arrive within a week or two. Why pay lots of money you don’t need to when you need it?

Related Posts Plugin for WordPress, Blogger...
The following two tabs change content below.
Brett Weiss, a senior partner at The Weiss Law Group, LLC, represents people and businesses in all phases of bankruptcy. He has experience in complex individual Chapter 7, Chapter 11, and Chapter 13 bankruptcy cases, and in Chapter 11 small business restructuring and reorganization. Mr. Weiss lectures nationally on bankruptcy issues. He has testified before the Federal Bankruptcy Rules Committee, the Consumer Financial Protection Bureau, and has twice testified before Congress on bankruptcy and credit issues. Brett Weiss is the co-author of Chapter 11 for Individual Debtors, and has written Not Dead Yet: Bankruptcy After BAPCPA, for the Maryland Bar Journal, as well as hundreds of blogs for the Bankruptcy Law Network. With his colleague, Daniel Press, he recorded a 13-hour basic bankruptcy training series, and leads intensive three-day Chapter 11 training boot camps. Mr. Weiss has received international media attention in connection with his work. He was interviewed by Barbara Walters on The View, has appeared on the Today Show, Good Morning America, ABC News with Peter Jennings, the Montel Williams Show, National Public Radio, AARP-TV, the BBC World Service, German state television, and numerous local radio and television programs, and been quoted in Money magazine, The Washington Post and The Baltimore Sun, among others. Brett Weiss is the previous Maryland State Chair for the National Association of Consumer Bankruptcy Attorneys, a founding member of the Bankruptcy Law Network, on the board of the Maryland State Bar Consumer Bankruptcy Council, and a member of the American Bankruptcy Institute and the Bankruptcy Bar Association of Maryland. He has received the Distinguished Service Award from the National Association of Consumer Bankruptcy Attorneys for his work on behalf of consumers across the country. Mr. Weiss is admitted to practice before Maryland and District of Columbia federal and state courts, the United States Courts of Appeals for the DC, Fourth and Eighth Circuits, the United States Tax Court, and the Supreme Court of the United States, and has been practicing law since 1983.

Sorry, the comment form is closed at this time.