Is a tax refund loan a good idea?
The basic principle of the tax refund loan was a great idea, how it played out was not good.
What is a tax refund loan.
It’s short term loan much like a payday loan. It’s was generally given for a 2-3 week duration after which the loan was to be paid in full. The good part is that it allowed the consumer access to all or a portion of the tax refund before the IRS has processed the return, therefore the money could be made available in as little as 24 hours although more typically it would take 2 – 3 days. Money fast instead of waiting for the IRS to issue you a check or ACH the money can sometimes be worth the cost particularly if it’s the only means you have of getting the money you need.
If your in a bind at tax time and need money now, it was a way to get the money fast, however like most things that offer the convenience of money quick, there is a cost and the cost was made up of fees and interest rates taking a substantial bite out of the refund.
As of 2013 these loans have been discontinued
In their place are refund anticipation checks and other financial products that aid the consumer, particularly the under-banked consumer in getting a refund fast.
Refund Anticipation Checks
The refund anticipation check is not a loan, this is used by tax preparation companies for their clients that do not have bank accounts to allow them to pay for their tax preparation fees out of the refund money and to get the money faster than waiting for a refund check. When the refund is received the bank subtracts the tax preparation fee and a fee for establishing the account, known as an administration fee, then issues the consumer a check or deposits the remaining funds onto a debit card.
Like any product that involves your money you need to read the fine print before agreeing to a Refund Anticipation Check, even though it is not a loan. You need to read the fine print because in opening one of these accounts you are essentially signing your refund check over to the bank or the tax preparer. With one of the larger well know banks or trusts this should not pose a problem. It pays to know exactly who you are dealing with and what you can expect. Don’t risk losing your refund to a dishonest scheme.