Beware Rapid Refund Tax Offers

It is a topic we see a lot of these days. Many companies, like check-cashing operations and some tax preparers, are offering rapid refunds or tax refund loans. You show them how much you will be getting back and the company will loan or advance you the funds immediately. You then pay them back when you get your actual refund, usually in two to four weeks. Sounds simple and convenient, doesn’t it.

Well, here’s the catch, and it’s a big one. They charge you a fee for advancing you the money. And while the fee may seem reasonable, you have to remember that you are only borrowing the money for a few weeks. So a $50 fee on a $500 refund that gets paid back in four weeks actually turns out to be an annual rate of 120%. Depending on the fee and the amount of the refund, annual rates could be as high as 500%

So what should you do?

• Avoid the temptation to use these rapid refund loans. Do you really need the money right now or can you wait for your refund and be able to keep the whole thing?
• Plan ahead for next year. Why are you getting a refund anyway? All a refund amounts to is the government paying you back your own money, and with no interest to boot! You need to adjust your withholding with your employer so you have less money withheld, more money in your paycheck to pay down debt or save.

A rapid refund loan might sound good initially, but turns into something completely different when you think it through. You work too hard for your money to waste it unnecessarily.