Income tax refund loans are not a good deal
We don't have a question to answer for you today. Instead, from time to time when I don't have questions from you to answer, I am going to start occasionally offering tax tips that may come in handy in April.
Today's Tip: Tax refund loans are nothing but a way to get you to part with your hard-earned money.
Tax refund lenders tend to target low-income taxpayers, but people in the so-called "middle class" also fall victim to this scheme. And yes, it's a scheme. For a loan fee ranging from $29.95 to $89.95 plus electronic filing fees of $40 or so, you receive a loan for the amount of your refund within a day or two. When your refund is received in an account set up by the lender, the loan is repaid.
The average loan time is about ten days.
Now get this...the fees for the average refund of $2,000 are roughly equal to an annual percentage rate of 222%. Some taxpayers pay even more, according to the Consumer Federation of America and the National Consumer Law Center.
If you really need money this badly, you should be glad to learn that there are no-cost or low-cost methods of achieving the same result.
An easy alternative is to reduce your income tax withholding by filing a form W-4 with your employer and claiming more withholding allowances. This is a good thing as long as you don't overdo it and are able to put aside a bit for any taxes you might owe at the end of the year.
If it's hard to save, you can opt to have money automatically deducted from your check and deposited into a savings account each pay period.
Other ways to get your money back from the government sooner include filing electronically to speed up your refund. Electronic filers who have their refund deposited directly into their bank account can receive their refund within ten days of filing. If you don't have a bank account, this process will take a little longer though.
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Today's Tip: Tax refund loans are nothing but a way to get you to part with your hard-earned money.
Tax refund lenders tend to target low-income taxpayers, but people in the so-called "middle class" also fall victim to this scheme. And yes, it's a scheme. For a loan fee ranging from $29.95 to $89.95 plus electronic filing fees of $40 or so, you receive a loan for the amount of your refund within a day or two. When your refund is received in an account set up by the lender, the loan is repaid.
The average loan time is about ten days.
Now get this...the fees for the average refund of $2,000 are roughly equal to an annual percentage rate of 222%. Some taxpayers pay even more, according to the Consumer Federation of America and the National Consumer Law Center.
If you really need money this badly, you should be glad to learn that there are no-cost or low-cost methods of achieving the same result.
An easy alternative is to reduce your income tax withholding by filing a form W-4 with your employer and claiming more withholding allowances. This is a good thing as long as you don't overdo it and are able to put aside a bit for any taxes you might owe at the end of the year.
If it's hard to save, you can opt to have money automatically deducted from your check and deposited into a savings account each pay period.
Other ways to get your money back from the government sooner include filing electronically to speed up your refund. Electronic filers who have their refund deposited directly into their bank account can receive their refund within ten days of filing. If you don't have a bank account, this process will take a little longer though.
posted by Scott at
10:14 PM
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