Many of you have already filed your taxes, and hopefully you used one of our preferred online tax software companies to do it so you have a chance to win a FREE iPad. One thing that I can’t stand about almost every major tax preparer/filer is that they peddle tax refund anticipation loans. These loans are bad news, but millions of Americans still apply for them and get ripped off in the process. Let’s take a look at a few reasons why refund anticipation loans should not be something you consider when getting your tax refund.
If You Need The Money Immediately, There’s a Problem
If you’re depending on your tax refund so you get a loan to have the money immediately, then you’ve got a big financial problem. Either you factored this money into your budget or you’re constantly straining to spend less than you make. Treat your tax refund like extra money that you weren’t expecting. Tax refunds are merely free loans that you gave to the government throughout the year, because your withholding wasn’t adjusted correctly. It was always your money, but don’t spend the money before you get it. If you’re spending more than you make on a regular basis, then your eyes will light up when you see a $1,500 refund, but you must attack the underlying problem: you need to get on a written budget and/or look for ways to increase your monthly income.
If you WANT the Money Immediately, There’s a Problem
Instant gratification has been viciously injected into our culture. We want our food quickly, we want our music instantly, we want quick service, and we get into the habit of never wanting to wait for anything. This is why the mentality of “buy now, pay later” is so popular in the United States. Why do you think so many companies offer “no money down” and “sign and drive” offers? It’s because we’re so tempted to get what we want right away. The refund anticipation is just another financial product that preys on this consumer weakness. I mean seriously, if you can’t wait two or three weeks to get your refund, you need to change your mentality.
The Interest is Ridiculous
In 2007, the Consumer Federation and the National Consumer Law Center reported that RALs cost the average borrower anywhere from about $30 to more than $125 in loan fees. Some tax preparers also charge separate fees on top of those amounts for the “application.” This last statement is from Money Smart Life who also did a piece on tax refund loans. $30 doesn’t sound like a lot of money, but when you think of it in the context of how long the wait period is and how much money that interest is on, we’re talking about an APR similar to rip-off payday loans. Essentially, it IS a cash advance loan, but it doesn’t feel like it, because it’s coming from a reputable company like H&R Block, not the local cash advance place with bars on the windows.
I’m being a little fiesty with this article, but I hope you’re getting my point about these refund loans. There’s no logical reason to get one. It’s less money in your pocket for an unneccessary convenience.
(photo credit: Newton Free Library)