Each and every year, millions of Americans willingly give the government interest free loans when they over pay their taxes directly from their pay checks. The government takes that money, invests in the global marketplace and makes a ton of profit from it. The income tax refund is basically returning the taxpayers’ money that was overpaid, without any interest. In other words, thank you very much for letting Uncle Sam use your money. Now you can have back exactly what you handed over to the government out of your paycheck every week. See you next year!
As the Income Tax preparation season is gearing up to a frenzy as more and more employees receive their W2 Forms from their employers, it is time to discuss Rapid Refund/Anticipation Loans. Why would anyone want to pay for a loan to borrow their own money with interest? Are people being purposely mislead to believe that they are getting their actual income tax refund faster! Or do they believe all the advertisements of enticement for getting their money refunded in as little as 24 hours, 48 hours or 1 week?
If this is such a great deal, then why did the Office of the Controller of Currency (which is an independent bureau of the U.S. Treasury Department), order HSBC Bank to terminate their agreement with H&R Block for the purpose of Refund Anticipation Loan products in late December 2010? Ouch!
According to the Internal Revenue Service, electronic filing (or e-filing) refunds are sent out or deposited within 3-10 days! In many cases, the time difference between getting a refund anticipation loan and the actual refund is just a few days. Therefore taxpayers who file their returns electronically and use direct deposit will get their refunds within about 10-14 days. Direct deposit can also be used with prepaid cards for those who don’t have bank accounts.
Unfortunately most people don’t know that a Refund Anticipation Loan is not their actual income tax refund. It is in fact a loan made by a third party financial institution that is basically guaranteed by their estimated income tax refund. If you waited all year to get your income tax refund, why can’t you wait a few more days to get ALL of your hard-earned money for your family?
The Center for Responsible Lending not only warns consumers about rapid refund anticipation loans, they also have video and numerous resources for assistance to make wiser decisions concerning their money. “Tax refund loans are short-term loans secured by a borrower’s expected tax return. The typical interest rate on a tax refund loan can range from 50% to over 500% (depending how long it takes the IRS to process the tax forms).” “While tax refund loans are advertised as a quicker way for taxpayers to receive their expected tax refund, in most cases these loans only speed up the process for a few days or less.”
So in reality Refund Anticipation Loans fall into the same category of predatory loans, as the high interest rates charged at pay-day-advance companies are another big financial trap in almost every African-American community. These short-term, high interest refund loans are offered mostly to low- and moderate-income taxpayers who can least afford them. Sounds like the old neighborhood loan shark from back in the day, the only difference is they won’t come and threaten bodily harm to you or your family. They just convince you to borrow you own money with high interest and put your family deeper into debt (possibly add another ding on your credit score to make it even harder to get a real loan later on down the road.)
A Treasury Department study found that fees charged in association with these loans — including tax preparation, setup fees and fees for e-filing returns — range from 5% to 25% of the refund amounts, with the higher amounts applied to the smallest refunds. Research from the Consumer Federation of America and the National Consumer Law Project that translates those costs into annual interest rates found they can be as high as 72% on an average refund loan of $3,300.
If you are not sure on how to prepare your own income tax return, or can not afford to pay someone else to do prepare your tax forms, the Internal Revenue Service (IRS) offers programs that provide free tax help to low- to moderate-income people and the elderly. By preparing your taxes at one of their sites you save yourself the hassle of any unexpected administrative fees and keep more of your hard-earned money. Most of these locations stay open right up to the filing deadline. Call 1-800-829-1040 or visit the website www.irs.gov to locate the nearest site and make an appointment to get your taxes prepared in a manner that will help you keep more of your hard earned income in your pocket.
