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The cost of getting a refund anticipation loan

[Feb 13, 2011.]

 

Some tax preparers claim they can give you an instant tax refund within 24 hours. Don't be fooled by promises of fast money; the government does not issue refunds that quickly. If you sign up for one of these instant refund deals, you're actually signing up for a refund anticipation loan.


"The promise of fast cash and an instant refund can be very attractive, especially in times of economic hardship," said New Jersey Attorney General Paula T. Dow in a statement. "But tax preparers who offer so-called same-day refunds are selling something that does not exist, typically at a high cost to the buyer."


High-rate loans


Most income tax refunds take up to three weeks to receive. If you elect to receive a refund via direct deposit, you'll get it faster. Some consumers who are desperate to get cash in their pockets right away sign up for refund anticipation loans, which require them to pay fees for the service. Like payday loans, refund anticipation loans often charge exorbitant rates of interest that can range from 50 percent to 500 percent, according to the Better Business Bureau (BBB). If you take out such a loan, you also may be charged administrative fees by the tax preparer.


Mistakes do happen


Another concern with getting a refund anticipation loan is that tax preparers sometimes make mistakes when calculating tax refunds. If you end up with a refund that is less than the amount of the loan you received, the difference will have to be repaid and you might be hit with fees and penalties.


"Consumers may assume that the loans will be paid off quickly when their refund arrives, but if the refund is less than the loan, consumers will have to repay the difference, plus fees and fines," said BBB president and CEO Michelle L. Corey in a statement.


Getting a loan


If you choose to get a refund anticipation loan despite high interest rates, there are several things to remember. Find out the annual percentage rate (APR). Get information on fees, including electronic-filing charges. Know the loan maturity date. And, finally, find out who is responsible for paying off a loan larger than the actual amount of the tax refund.


 

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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