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Personal Loans: Should You Use Rapid Refund Tax Services?

[Feb 17, 2009.]


Each tax season, many people count on receiving tax refunds to help with their expenses. As a result, many turn to rapid refunds, which are basically fast cash personal loans, instead of waiting for their tax return to be processed. But it's important to understand the pros and cons of using this type of personal loan.

Rapid refunds, also called refund anticipation loans, allow people to have access to their cash while they wait for the Internal Revenue Service to process their income tax returns. The money may be available in as little as 24 hours. However, these short term personal loans often charge high interest rates of 50% to 500%. Most people would be better off skipping these fast cash personal loans and waiting a couple weeks to get their tax refund.

Many tax filers should instead consider using free tax preparation services in their local community. Most free services will electronically file tax returns, resulting in taxpayers receiving their refunds faster than if they mailed their returns. The refund can be direct deposited in a bank account in eight to 10 days, whereas receiving a check may add another week. Filing electronically can also increase the accuracy of a return.

Using rapid refund tax filing services can also open taxpayers up to scams. For example, New York’s Department of Consumer Affairs investigated hundreds of tax preparation services and issued over 1,200 violations at the beginning of the 2009 tax-filing season. Many of the violations were for deceptive advertising for rapid refund services.

Low income filers are particularly vulnerable to rapid refund schemes. Predatory tax –time personal loans stripped $324 million dollars from New York City’s poorest communities between 2002 and 2005, according to the Neighborhood Economic Development Advocacy Project.

Some tax services even offered “holiday loans” ahead of the tax-filing season that offered fast cash personal loans based on a person’s pay stub and anticipated tax refund. In addition to charging high interest and other fees, these firms pressured borrowers to return to have their taxes prepared during tax season.


About Author:

Francine L. Huff is a freelance journalist and the author of The 25-Day Money Makeover for Women. She has appeared on a variety of TV and radio shows.

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