Tax Refund Anticipation Loans: A Good Deal?
Michael Laurance  The Wealth Coach

     QUESTION:  Michael, I see a lot of ads for Tax Refund Anticipation Loans.  With the bills from the holidays coming due, are these a good deal?

     ANSWER:  ABSOLUTELY NOT!!  As I counsel all of my clients, “READ THE FINE PRINT BEFORE YOU SIGN ANYTHING!”  If you read the fine print on these scammer loans, you will find your are paying outrageous fees and interest rates on these short term loans that give you access a few weeks earlier, if that, to your money.

     Yet, there were over 12 million of these loans completed in 2004, the last year I have data.  Of those 12 million loans, there were over $1.6 Billion in fees alone, averaging out to about $135 per loan.  This is on top of the fees paid to the firm that would also prepare your income tax return.

     AND THE INTEREST RATES…sheesh!  They range from an annualized interest rate of 40% to OVER 700%, with the average being 178%!  Just to get YOUR money back a few weeks earlier.

     Clearly, this is not a good deal!

     Sadly, over half of the people who get one of these loans are low income earners as evidenced by being eligible for the Earned Income Tax Credit.  In other words, those who can afford these insane loans the least are the ones who use them the most!

     Here is my advice:  if you are due a refund, file early and file electronically if at all possible…and you will have your refund in a week or so.   If you cannot pay the interest on your credit cards from your holiday splurge, plan to pay as much as you can, ALWAYS more than the minimum, and pay the balance off when you receive the refund. 

     Even if you cannot file electronically, you are far better waiting the six to eight weeks to get your refund and paying the interest rate on your credit card, than paying these outrageous fees and interest rates!