Tax Refund Anticipation Loans: A Bad Idea

“Get your tax refund now!” says the nice looking man on the TV. He is explaining how I can get my tax refund now, without the hassle of the wait, when I get my taxes prepared by one of those tax prep companies.
And it seems like it might be a good idea. After all, why wait for money that’s already coming to you? But before you bite, consider this: Getting your tax refund now is actually done through what is known as a tax refund anticipation loan. These companies aren’t being nice and giving you your tax refund early; they’re lending you money — usually charging steep fees — and expecting you to pay it back with your tax return.

High fees for tax return anticipation loans

If you really are in a tough spot and you need the money immediately, it might be worth it to pay the high fees charged for these tax return loans. Just realize that these are, in fact, short-term loans and that you will be required to pay them back. You are in no way actually receiving your tax refund instantly. If you want to get your tax refund a little bit faster, you can actually e-file with the IRS and choose the direct deposit item. When I did this, it took about three weeks to receive my tax refund. No fees attached.

Another thing to watch out for is the “convenience” of a debit card. Some tax prep companies are offering debit cards to go along with the tax refund anticipation loan. These debit cards come with their own additional fees. Per-transaction fees can be between $1.50 and $2.50 — depending on the company and where the cards are used.

The bottom line is that whenever you try and get cash back immediately, there are hefty fees involved; you won’t be getting all of the money you are entitled to. Review your situation before accepting a tax refund anticipation loan, and determine if it really is what’s best for you.

image source: sxc.hu