Payday loans are a fast, efficient way to obtain quick cash during a financial emergency, and it bears mentioning that they are a much cheaper alternative than tax refund loans, a trendy new phenomenon for quick cash. They may be trendy, but the product bears excessive fees that payday loans simply don’t have.
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But let’s think about it. Since it’s time to file your income taxes, you may be thinking about the size of the refund you are entitled to. If you experience a financial setback at this time, it’s only natural to be interested in the possibility of receiving your tax refund money early, right?
Be careful - tax refund loans aren’t as good as they seem
Tax refund loans, also called instant refund loans or refund anticipation loans, seem like a great thing if you need cash right now. But the costs are steep. Origination fees range from $29.95 to $89.95, and electronic filing fees of $40 are also common. All you typically need to apply is a year-end pay stub, proof of employment and identification. Sure, you can receive all or a portion of your tax refund (up to about $5,000) within a couple of days, but why would you want to when payday loans are available without origination or “filing” fees?
According to About.com, “the fees for the average refund of just under $2,000 extrapolate to an annual percentage rate of 222.5 percent. Yet 12 million taxpayers paid over $900 million dollars in fees last year just to get their refunds a little faster.”
People think they need tax refund loans
Have they heard of no fax payday loans? They a much more attractive option. Yet the new trend persists.
In Atlanta Journal-Constitution coverage of this outrageous phenomenon, we see that people are indeed using tax refund loans to cover cash emergencies. Graphic artist Pat Cameron had medical bills to cover, so he went to Jackson Hewitt for a tax refund loan.
“I know they charge so much, but this will get me through the first of the month,” he said.
The IRS doesn’t endorse such programs, but neither do they openly speak out against them. They encourage taxpayers to use free electronic filing services, which directly deposit any refund monies due into a consumer’s checking or savings account in about 10 business days. For those who can show hardship, there are even special programs available. But if even that is not fast enough, faxless payday loans are a much better option than tax refund loans.
Recession drives people to desperate ends
That’s exactly the category tax refund loans fall under: desperation.
Overdue bills, foreclosures, rent and many other ominous signs are threatening the financial well-being of consumers. Numerous big-box tax preparation companies like H & R Block, Jackson Hewitt and others are swooping in with these high fee, high interest loans.
Suzanne Boas, president of the Consumer Credit Counseling Service of Greater Atlanta, is quoted on the matter in the Journal-Constitution
Generally, we don’t think it’s a good idea to pay such an exorbitant rate to get what would be due to you anyway in a couple of weeks.
Consumers, payday loans are a better option!
If you are due a tax refund, you will receive it in a couple of weeks if you are using free electronic filing with direct deposit. Don’t go the route of tax refund loans unless paying exorbitant fees upon fees, plus high interest are OK with you. Logically, it’s not the best choice. If you need quick cash for an emergency and can’t wait until you have your tax refund safely in your bank account, try payday loans. They’re cheaper, fast and quite discreet.
If you need assistance with tax trouble click tax resolution/settlement.
You gotta be kidding me!! Refeund Loans are not a trendy new phenomenon. They were developed in the late 80’s in cooperation with the IRS to help people get their anticipated refunds quicker than the IRS could deliver them. Not sure the IRS helped develop payday loans though. But history aside, and right to the point, with the bank loan fees “all in” an average RAL of $3200 cost $3.75 per $100 loaned (even cheaper some places)… payday loans cost $15-$20 per $100 loaned. Hmmm. Oh, and by the way, many people use tax refund loans as a way to finally get out from the payday loan cycle they are stuck in. You and the U-tube clip have most facts wrong or distorted. I have no beef with paday lenders. Apparently they are forms of credit many people today (especially today) require. However, do not even attempt to compare them to refund loans. The comparison is ludicrous.
hmm… spend $400 getting your refund faster, included tax prep, or do it yourself for free, and if you need a couple hundred buck while your waiting, spend what $30 - $50 on a payday loan. Yeah that’s a real tough one “Joe the RAL guy”
Interesting that Atlanta quotes were chosen since payday loans are illegal in Georgia.
Mike, Mike, Mike… nobody knocks free tax prep. That’s the beauty of America, we can still “choose” and there is something for everybody. As for 50 bucks for a couple hundred dollar payday loan (and in these times I’m glad that is all you need Mike)…. again, free country: up to you. But using your example, that’s $25 per $100 loaned… or use your low end estimate of $30 for a couple hundred bucks - that’s $15 per $100 loaned… and that doesn’t include the mounting charges if you need to roll it over to the next paycheck. The average RAL is $3200 and are for people who “need” more than a couple hundred bucks to get by. As I stated before, the bank charge “all in” and “one time” for $3200 is about $3.750 per $100 loaned and much cheaper than your example. Whether people “choose” to avail themselves of professional tax preparation or go to VITA sites or even IRS Free file is up to them and the level of comfort they require. Some people don’t trust the government to give them pre-filled in forms while others don’t trust preparers - all OK - but if they do go to a paid preparer of their choice that has nothing to do with the cost of a RAL. Two seperate personal choices Mike made for entirely personal reasons… and RALs are still cheaper than payday loans no matter how you cut it.