Be Wary Of Refund Anticipation Loans

In just a few weeks most consumers will begin to gather the necessary documents needed to file their tax returns for yet another year. Ideally you have your tax deductions set up in a way that you break even, however many people end up either paying in or receiving a tax refund. If you are struggling just to get by and anticipate a tax refund you might be tempted to speed up the process by getting your refund early via a refund anticipation loan. Before doing so you should know that you will be paying a pretty penny to get your money this way. Tax refunds can be received relatively quickly these days making it even more expensive to pay a fee to receive your cash a few weeks or even days before you would have received your refund. Consider the following before being tempted by a refund anticipation loan.

• You are paying to borrow your own money- When you think of it this way it seems a bit silly to pay money to borrow from yourself. That is exactly what you are doing when you agree to a refund anticipation loan. Considering you can receive your refund from the IRS without paying a single cent in 10-14 days, it simply doesn’t pay to borrow your own money.

• Know how to recognize a refund anticipation loan- Most people don’t even realize they are agreeing to a loan when they sign up to receive their refund early. If you are not actively seeking a loan, you might not realize that advertisements tempting you to buy a car, computer or television today, are in actuality refund anticipation loans. The same is true if you are asked by your tax preparer if you are interested in an instant refund. They are basically paying your refund, minus fees and other costs, only to collect your refund in a few days from the IRS.

• Triple digit interest rates- Most people don’t think twice before paying a few bucks, maybe even over a hundred dollars to receive a large refund instantly. When you crunch the numbers however, due to the extreme short loan period you are actually paying an annual interest rate that could be in the triple digits.

• Problems with your refund- While most taxpayers experience few if any problems receiving their income tax return, it is not outside the realm of possibility that problems could arise. If for some reason your refund is held up, frozen or less than the amount you anticipated, you could be on the hook to repay that money to the merchant or tax preparer. This could have devastating effects on your finances if you have already spent the money.

Getting a refund anticipation loan is simply a bad financial move unless you are absolutely in dire need of cash today. In almost all situations you can avoid the potential fees and problems associated with this type of “instant refund” by simply filing your refund online and requesting the payment via direct deposit to your bank account. After all, you’ve waited all year so a few more days shouldn’t be too much to handle.