Get Money Now!, but you'll pay later
By HELEN HUNTLEY
Published February 4, 2005
Last year more than 12 million taxpayers spent $1.4 billion on tax refund anticipation loans. However, consumer groups say there's no need to spend $100 or more just to get your money a few days earlier. Here are tips for keeping more of your refund for yourself:
It's really a loan : Call it "instant money," "money now," or "superfast cash." Many people who sign up for such options don't even realize they are taking out a loan. Nobody's giving money away.
You have to pay it back : Since it is a loan, if the IRS rejects your refund claim or says you're entitled to a smaller refund than you expected, you still have to repay the money. If you don't repay it, the account could end up in collection and hurt your credit rating.
The interest rates are stratospheric : A refund anticipation loan for a typical refund of about $2,050 will cost about $100. That may not seem like much, but since the lender gets its money back quickly, the fee works out to an annual interest rate of more than 100 percent. A same-day refund loan may have an extra charge of $20 to $39. With administrative fees included, the annual interest rate on a refund loan can be more than 1,000 percent.
You're paying for preparation , too: In addition to loan fees, taxpayers who use refund anticipation loans pay an average of $120 for tax preparation services.
You could file for free : If you're computer savvy and have online access, you can file for free on the IRS Web site www.irs.gov . If you need help, volunteer tax preparers are willing to provide it. Call toll-free 1-800-829-1040 or 1-888-227-7669 to find a location near you. Ask if it offers electronic filing.
Even free is fast : If you file electronically and have your refund direct deposited in your bank account, you should get it within two weeks. And that's without paying anything extra.
Open an account : If you don't already have a bank account, now is a good time to open one so you can have your refund deposited. By keeping an account open, you can avoid the high fees charged by check-cashing services. However, you have to manage it responsibly to avoid bank fees.
Consider less costly options : If you don't have a bank account and don't want one, you may be able to collect your refund check at your tax preparer's office, which is faster than waiting for a check to arrive by mail. Since you don't get the money until the refund comes through, this is not a loan.
Ask for extensions : If you are counting on your tax refund to pay bills, ask the person you owe if they can wait a little longer for your refund to arrive.
Watch those check-cashing fees : If you get your money by check and don't have a bank account, shop around for the lowest-cost option for cashing it.
- Helen Huntley, huntley@tampabay.com
Sources: Consumer Federation of America; National Consumer Law Center.