Income Tax Rapid Refund Loans Are Rip-Offs, Advises Popular ICFE Consultant "Mr. G".
This early refund loan, or "Refund Anticipation Loan" (RAL), is a very short-term loan against your expected tax refund and is arranged by the tax preparer through a bank. The loan is repaid when the IRS sends your full refund to the bank. Refund loans are VERY expensive," warns Mr. G. a/k/a Jim Garnett of Des Moines, IA, who serves on the ICFE's educational advisory board.
Loan costs range from $29 to $120, subject to refund amounts, meaning the interest rate on "RAL" loans could range from 40% to over 700% APR. The average tax refund of $2,150 would carry a finance charge of $100, or about 178% APR! Additional fees for tax preparation, electronic filing, or check-cashing can double or triple that cost. An RAL loan takes 1-4 days compared to 7-10 days with electronic filing and direct deposit.
Pay-stub or "holiday" RAL's, offered before the taxpayer receives a W-2, are based on the latest pay stub which indicates the estimated tax return. "The estimated amount, however, may not reflect pre-tax retirement deductions, or money withheld for child support or taxes and the taxpayer will have to pay the full amount estimated on the pay stub whether or not the refund is large enough to cover the cost of the loan and fees. Pay stub RAL fees are most often as high as other RAL's.
"Avoid these Rapid Tax Refund Loans!" advises Mr. G.
The AskMrG Web Library is a nation-wide resource for financial literacy and recorded over half-a-million visitors in its first full year of operation. To view the AskMrG Web Library go to www.icfe.info and click on the AskMrG icon.
Mr. G. is the Director of Education at Consumer Credit of Des Moines a/k/a Consumer Credit of America and serves on the Iowa Jumpstart Coalition's Board of Directors.
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|Date:||Feb 6, 2007|
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