The advertisements for tax services around this time of year often come with an offer of a refund anticipation loan. They might have a different name such as "Rapid Refund" or "Fast Cash," but the fine print will show that the "refund" is really a loan.
To offer this "service" the tax preparation company has arranged with a bank to loan taxpayers the amount of their expected refund. According to the National Consumer Law Center, the fees for these loans range from 60 percent to over 700 percent. That is a lot to pay to have the money just a couple of weeks early!
People believe that these loans are low-risk, but if any problems arise, the money must be paid back. What happens if the IRS denies or delays your refund? Or what if your refund is smaller than expected? You will still have to pay the money back. If you have already spent the money, you will be stuck with a debt that can hurt your credit score or be turned over to a collection agency.
H&R Block was sued for marketing these high-cost loans primarily to low-income families. They've decided not to offer these loans in 2012. But the loans are still available from other companies.
Instead of taking out a refund anticipation loan, try some of these other options:
- File your tax return electronically and include your bank account information for direct deposit. You can get a refund this way in about 10 days (free of charge).
- If you don't have a bank account, open one. You'll be able to get your refund through direct deposit and have a place to save your money for the future! Even if you choose not to use direct deposit, you'll avoid paying fees to cash your refund check.
- Try to negotiate with your creditors for a little more time, until your refund has arrived.
One way to file your taxes free of charge is by visiting a Volunteer Income Tax Assistance site. These sites provide tax help for people who make around $50,000 or less and file a basic income tax return. They can also tell you about tax benefits you may qualify for, such as the Earned Income Credit, Child Tax Credit, or Credits for the Elderly or Disabled. Many of these sites are able to file your return electronically. You can find your local site at this url: http://www.aarp.org/applications/VMISLocator/searchTaxAideLocations.action.
Another free option for people who have internet access at home is the website at www.icanefile.org.
If you would like to learn more about money management, contact us for information about our Managing Your Money series, which is offered continually in localities throughout the Northern Shenandoah Valley. Call me at 540-459-6140, e-mail me at firstname.lastname@example.org, or call your local office of Virginia Cooperative Extension. You can download a copy of the registration flyer at the following url: http://offices.ext.vt.edu/shenandoah/programs/fcs/Files/Managing_Your_Money_Series_Winter_2012_Flyer.pdf.