Have you or would you ever take out a Payday Loan?
You know, those loans that charge exorbitant interest rates to desperate people that can’t wait for their next “payday” so they need the loan today?
If you answer no, then Why On Earth would you fall for a Tax Refund Loans or “Refund Anticipation Loan“? Perhaps you haven’t read the fine print or fully considered the rates you’re paying.
If the answer is yes, then you’re probably already familiar with these loans as well.
Basically, if you’re a taxpayer who’s getting a decent sized tax refund this year (and no, You Don’t Go to Finance Hell for Getting a Big Refund), many of the generic tax preparation services will offer you one of these trainwrecks of an option. In exchange for waiting a couple weeks for your refund to come in the conventional fashion from the IRS, in order to get those paws on your refund today, you have the luxury of paying interest rates that can range from 50% to over 500% annualized for that sense of instant gratification. (source: Baltimore Sun). According to the article, consumers paid $800 Million in fees for these loans in 2008. Almost a Billion Dollars…
With the highest online savings rate paying 1-2%, and even the worst credit card interest rates in the 20’s, why you you borrow at a rate 5-25 times worse than a high interest credit card? Oh, it’s “only” a hundred bucks. That’s one hundred dollars! Invest it if you don’t need it!
Now, I don’t mean to insult anyone that’s done this before and hadn’t considered the implications. Darwin will be disappointed though, if you go out and do this after you’ve done the math now that you’re informed. Have some patience and try planning instead of throwing away your money. This isn’t a debate over how much to tip your waiter or whether or not you think buying a new 3D television as an early adopter is worth the cost. This is quite simply an exercise in paying for convenience a rate that is illegal in virtually every state in any other setting – other than at tax time.
Better yet, instead of waiting until April 14th to do your taxes and request one of these loans, take the 5 minutes and start your taxes now and file them this weekend yourself. I’ve always preferred TurboTax over TaxCut and the other online services in years I do my taxes. You’ll have your refund before you know it!
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