Just say “No, thank you.”
What are Refund Anticipation Loans?
Refund anticipation loans are loans given to you by the company that did your taxes in return for signing over your tax return. They give you a check, or prepaid debit card, and you sign over your refund to them. So you get cash right now, they get your refund later. I totally see why they are tempting. You are sitting there getting your taxes done. Mr. Tax Guy says you will be getting a $3,000 return. Yay! He then asks for his fee of $150. Boo!
“Oh but wait”, he says. “Instead of paying me $150 and waiting almost a month for your $3,000 I can give you a check right now for $2,700 and you just sign over your tax return to me.”
Gee, that sounds pretty good! You don’t have to pay anything out of pocket AND you get to walk out with $2,700 in your pocket. That seems like win-win right? Well, it’s win-win alright, but not for you. It’s win-win for your tax guy.
Why they suck.
The main reason the suck is because of the fees. Refund anticipation loans are basically dressed up payday loans, and they carry the same types of interest rates. But at least with payday loans the lender is taking a risk. With refund anticipation loans the lender has almost no risk, which makes the high fees even more infuriating. In this made up situation you end up paying TWICE what you would have to get your taxes done. His fee for preparing your taxes was $150. If you take the loan you are also paying fees to get your money early. If you didn’t want to pay the $150, why would you pay $300?
Another reason that they suck is the time frames we are really dealing with. First off, you have waited a year for this money, you can wait a few more weeks. Secondly, you don’t always get the money right then and there. H&R block will send you a check in 7-14 days. The average time frame to receive your federal refund is 18-25 days. So it’s entirely possible that you paid fees to get your money only 4 days earlier. Best case scenario you only get your check 18 day early. What is really going on for those 4-18 days that couldn’t wait?
I hate to even say this but I would rather see you put that emergency on a credit card and pay it off with your tax return 2 weeks later than to take a rapid refund check.
Have you ever gotten a refund anticipation loan? How much did it cost you? I couldn’t find anything online that stated a fee structure, which I take as a very bad sign. If you have experiences with this type of loan I’d love to hear the details!