There Are Better Options Than Tax Refund Loans

Be patient. E-file.

Bloomberg’s Jason Breslow reports that Americans are eager to be bamboozled and duped by the lure of tax refund loans. On the side of sanity, only a small amount of research and the sense of a rabbit will reveal that they are exceedingly expensive. It’s better to wait until your automatic refund and not buy into tax preparer propaganda that “millions” of wage earners who earn enough to be taxed don’t have checking accounts.

Yet the troubling trend continues. More Americans applied for tax refund loans in 2007, reversing two years of declines, according to the Consumer Federation of America and National Consumer Law Center. Many are using it to help them pay their bills, a mistake that could easily be rectified if they knew about short-term cash advance loans.

Desperation

“You probably have increased demand because more people are struggling with debt,” said Ira Rheingold of the National Association of Consumer Advocates. “When people are desperate for cash, they’re desperate for cash.”

Tax refund loans are secured loans tied to an expected tax refund. Tax preparers and other lending outlets typically use a taxpayer’s pay stub or car title as collateral. Almost nine million Americans (one in 15 taxpayers) paid around $901 million during the 2007 tax filing year for refund loans. That’s in fees alone, and it’s a staggering amount.

Why? Why?

Chi Chi Wu, a staff attorney at the National Consumer Law Center, stresses how unnecessary tax refund loans are. Yes, they deliver money in one or two, but with a little bit of planning, perhaps budget problems can be avoided. E-filing yourself ensures a full refund with no fees or deductions like those associated with refund loans, and it can go directly into your bank account in less than 15 days.

If 15 days are too long to wait, consider cash advance loans. With a bank account and documentation of steady employment, you can typically get up to $1,500 same day if you qualify. Depending upon the lender, the service fee ranges from $15 to $25 per $100 loans, which amounts to 15 to 25 percent paid in fees. That’s it. It’s easy, and studies have shown that people who use these loans are in no way on the road to bankruptcy because of them.

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