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Well, it’s tax time again and, if you’re one of those fortunate enough to get a refund, you’ll likely want to get your money as quickly as possible. Like most of us, you could probably use it right about now. But, before you head off to the local office of your favorite nationally branded tax service, you might want to consider being just a little bit patient this year.
The Consumer Federation of America is issuing a warning regarding Refund Anticipation Loans (RALs), commonly referred to as “Rapid Refund”. These loans enable taxpayers to get their IRS refund in 24 to 48 hours instead of having to wait 2 to 3 weeks for an IRS issued check or direct deposit. The consumer group is upset about the fees that are associated with these loans, which are often wrapped into tax preparation fees so that the taxpayer never knows exactly how much the RAL is costing them.
Essentially, these loans will run you around 90 dollars, but since you will only see the total of your tax prep fees, you may not realize that you will pay from 33 to 72 percent on the loan!!! These charges are made to seem less painful, since they are taken directly from your refund, instead of your bank account, but it’s still costing you a lot more than you may think. On the other hand, if you wait two weeks more, you can get your entire refund for free.
In the interests of full disclosure, I should state that I used to work at a national tax preparation service. The company was very trustworthy and I enjoyed working there. But, I routinely discounted the tax prep fees to try to ease some of the RAL pain on customers and this was encouraged by my supervisors. Even the employees know that this “convenient service option” is basically a loan shark-style transaction.
So, unless you have a dire emergency that requires you to come up with the exact amount of your refund (minus the tax prep and RAL fees) in 24 to 48 hours, wait 2 to 3 weeks and get your money for free. Even better, file your tax return yourself online. You’ll save money and learn more about how your money works at the same time!