Tax Refund Loans – Large Cost to Avoid a Short Wait

   It’s that time of year again – tax season! Maybe you’ve filed and received your refund already. Maybe you are waiting until April 15 because you owe a check to Uncle Sam. Or maybe you know you’re getting a refund, but still need to open all those tax documents. For those anticipating a refund, there are devices being advertised out there to get your money almost immediately. They are called tax refund loan or refund anticipation check.

   A tax refund loan is a loan given by a third-party lender (not the IRS). After applying for the loan, you receive a portion of your anticipated refund up to $1,000 within twenty-four hours. For additional fees (of course), you can receive the money as soon as within an hour. You are expected to pay back the loan once you receive your refund.

   What’s the catch? The lender can charge an APR of anywhere from 200% – 780%! There are also fees and other charges that apply. Partial payment, non-payment, or late payment of your loan may result in additional fees, legal collection action, or your failure to pay being reported to a consumer reporting agency.

   There is also a product called a Refund Anticipation Check. These are usually offered by the person preparing your taxes, especially if you go to a large chain. Instead of paying your tax preparer at the appointment, the fee is deducted from your refund when you receive it. You get a temporary bank account where the IRS can deposit your refund. When the money arrives, the bank issues a check or prepaid debit card, after subtracting the tax preparation fee and bank fee. The bank fee is at least $30 for this service, usually more.

   What is a less expensive alternative with only a slightly longer wait time? E-file your tax return and direct deposit your refund. E-filing avoids mishaps in mailing, ensures few mistakes, and gets you a faster refund than filing a paper return. Direct deposit allows you to include your bank account information on your tax return, and the IRS deposits your refund directly into your bank account. This avoids them having to send you a check in the mail.

   If you e-file your tax return and set up direct deposit, you can expect to receive your refund within one to three weeks. Depending on timing, it could be as early as six days. And you get to keep your entire refund, instead of paying hundreds (or thousands) in interest and fees.

   So if your tax preparer asks if you are interested in a tax refund loan or refund anticipation check, consider these facts before you answer.

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