By Evan Vitale
Tax season is upon us and you’re probably in the same situation with others in that you’d like to get your taxes filed as quickly as possible and get your hands on your return.
However, what about those different businesses that help you prepare your taxes so they can offer you a “loan” on your return?
Unfortunately, even if you need the money right away, it might not be worth the price.
These are short-term loans – also called “instant refund loans” or “refund anticipation loans” – are popular as millions of Americans use the service year after year.
So, why are they a bad idea?
- Large fees. Businesses offering tax services and short-term loans on your returns may also be charging you initial loan fees; tax preparation fees and electronic fees for filing your return. These fees might take a bite out of a larger return you were expecting.
- Outrageous APR. In order to receive the loan on your return, you might have to pay an annual percentage rate of over 200%. Remember, this is just a short-term loan. Would you pay such a high rate for a car or home loan? Of course not!
- Potential IRS problems. Remember the Internal Revenue Service? If there is any problem with your return, the IRS could throw a wrench into things and hold your refund. Even if that happens, you’re still responsible for paying off your short-term loan and now you’re stuck due to a return problem.
Some people may not have a choice and might be in a tough financial pinch and need the money from “loan on your return” businesses. If so, look for the best deal and the best interest rate. Do your homework, but remember: the best advice is to try to avoid getting a loan on your return altogether.
