You’ve probably seen those rapid refund signs on the tax preparer’s door, offering your money back like lightning. It seems too good to be true, getting your money before the ink on the tax return is dry.
And lots of people are taking the plunge, with such Refund Anticipation Loan fees totaling just about $960 million in 2005 according to a recent study by the National Consumer Law Center and Consumer Federation of America.
Before you go for that rapid refund, think again. According to a recent article:
Accounting agencies and chain tax preparing firms are teaming up with banks to fund these loans. The effective annualized interest rate for a RAL based on a 10 day period (the average amount of time it takes to get a refund), can range from about 40 percent for a $10,000 loan to between 85 and 170 percent for a $2,500 loan, the NCLC/CFA study revealed.
Not only that, but most people don’t realize that a Refund Anticipation Loan is based on the expected refund. If the preparation company makes a mistake or you don’t get your refund due to overdue child support, student loans, back taxes or other reasons then you will be required to pay back that loan – with interest.
The key is realizing that it doesn’t always take quite so long to get your refund the old-fashioned way. In fact, if you file your taxes before the middle of March you’ll probably get your refund in under three weeks.
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