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Income Tax Refund Loans
Tax Time Refunds Are Here Again
It's tax time and millions of people will be getting refinds.
So, why wait? Why not get your refund fast so you can use it right away?
Is a loan in anticipation of your income tax refund a good idea, or not?
The fact is, you can get an anticipatory tax refund loan from many tax preparation providers. They are happy to loan you money based on your anticipated refund. And, they will only charge you a small fee.
The government's Federal Deposit Insurance Corporation (FDIC) wants you to know exactly what you will be getting:
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Perhaps you've heard or read about "refund anticipation loans" (RALs) arranged by tax preparers for people who file their returns electronically. These loans enable you to get cash in just a day or two and pay the money back with your tax refund. RALs may offer quick and convenient access to cash and the fees may seem small, but be careful. The costs translate to very high interest rates compared with other loans.
For the typical RAL, you can expect to pay lender fees of about $35 to $100 (depending on the size of the loan). These fees can translate to Annual Percentage Rates (APRs) of about 60 to 650 percent or more, far above what you'd probably be willing to pay for other loans.
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Rather than pay exorbitant rates for your income tax anticipation loan (RAL), you should consider other alternatives.
The low interest rate alternative (if you have equity in your home) is to take out a home equity line of credit. You can get a loan at very competitive rates and can pay it back with your refund when it come.
A high interest rate alternative (sill a lot lower than most RALs) is to borrow money on your credit card. Even at interest rates of 30% or so, you come out ahead of the RAL interest rates.
Refund anticipation loans are a good idea. But, mainly for the loan providers. Because of the extremely high interest rates, they are normally a bad idea for consumers.
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