Rapid Tax Refund Loans
Rapid Tax Refund Loans
Q: What can you tell me about these Rapid Tax-Refund Loans" Are they a good idea.
A: Rapid Tax-Refund Loans are a very costly way to get your tax refund a few days early. A "Refund Anticipation Loan" or "RAL" is a loan borrowed against your expected tax refund. Such a loan may come a few days faster than the refund - but you will pay extremely high fees to borrow your own money!
RAL's are very short-term loans, arranged by your tax preparer through a bank. The loan is repaid when the IRS sends your full refund to the bank.
These loans are EXPENSIVE! According to a report in 2005 by the Consumer Federation of America and the National Consumer Law Center, the loans cost about $29 to $120, depending on the size of the refund. That means the interest rate on "RAL" loans could range from about 40% to over 700% APR (Annual Percentage Rate of interest). That's a bad bargain for an "advance" of just 7 to 10 days!
Consumers Need To Consider These Two Questions:
1. How much exactly am I paying for this loan? An average refund is about $2,150, with a typical finance charge of $100 for a refund anticipation loan - a 178% APR. Additional fees for tax preparation, electronic filing, or check-cashing can double or triple that cost. If you are not careful, you will be spending much of your tax refund before you even get it!
2. What exactly does this fee buy me? A typical RAL loan gets your refund to you in about 1-4 days compared to 7-10 days with electronic filing and direct deposit to your bank.
Other tax refund loans to avoid are the so-called "pay stubb RAL's" or "holiday RAL's". These loans are offered before the taxpayer receives a W-2 and are based on his latest pay stub which indicates the estimated tax return. However, the estimated amount may not reflect pre-tax retirement deductions, or money withheld for child support or taxes. The tax payer will have to pay the full amount estimated on the pay stub whether or not the refund is large enough to cover the cost of the loan and fees. Pay stub RAL fees are most often as high as other RAL's.
Think about it! We work too hard for our money! There is no reason on earth to pay such a high premium just to get our refund a few days early! Smart consumers avoid these Rapid Tax-Refund Loans like a bad habit!
Tax Refund Loans
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Tax Refund Loans
Options To Avoid In Credit Repair And Building
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