Closing Tax Notes – Avoid “Tax Refund Loans” !!!

If you live or work near the inner-city, or even low-income areas, you may be quite familiar with the tax refund loan services. Are they cheating you?

It’s almost tax-refund time. If you’ve been careful this year, your refund will most likely be pretty small. My refund this year is less than $300, last year it was upwards of $2000 until I [saw the light].

However, if you are expecting a significant refund this year you have options to get your money. You can e-file with the IRS directly, and receive your refund in a decent amount of time (usually within a few days). Some however, have opted to get “instant refunds” via Tax Refund Loan services (TRLs) Don’t get me wrong—I think these companies do provide adequate tax-prep services, especially if you have a home or business (I don’t). However, if you’re due a refund, its best that you e-file. Here’s why.

Interest Rates – Trust me, the Credit Card Cliques may charge absurd interest on their loans, but they can’t hold a candle to the immense rates charged by the TRLs. Because the rates charged are not “interest rates” per se, but instead they charge a $30-$80 “service fee” followed by a $40 filing fee—which, if annualized, add up to astronomical rates that far exceed state usury laws (which these tax refund loan companies circumvent). The interest rate is charged as a “10-day loan” so it doesn’t seem as if you’re paying a lot of money. Rates can climb to over 100% or more.

No, I didn’t miss any decimals.

These are actual interest rates charged by actual companies. What’s troubling is that these rates are paid by taxpayers who tend to live in low-income areas, where most of these tax centers are concentrated. If you see one in your area, avoid applying for your refund unless you have no other choice. Some people do not have bank accounts (for example). However, the government has passed laws to allow you to file your taxes for a nominal rate (and depending on your tax form’s complexity, virtually free!)

For more information on this potential rip-off, read this bankrate.com article [here]