Refund anticipation loans are a bad deal

The smell of tax returns is in the air, and so is the stink of shysters. Tax season means tax preparers and others are pushing high-cost refund anticipation loans. H&R Block, the popular low-cost tax preparation service, pushes refund anticipation loans on its “Fast Money Options” page.

Nothing is free, and nobody will pass up an opportunity to fleece you in exchange for giving you a short-term loan based on your anticipated refund. for example, if you want to walk out of your local H&R Block office with a $200 refund anticipation loan, you will pay what adds up to a 481% annual percentage rate (mirror; PDF link). You also pay $22.28-$77.23 in fees! That means that, after all is said and done, you will get about half your refund.

Refund anticipation loans (often called “RALs”) are basically just payday loans under another name. And just like payday loans, they come with hefty rates and huge fees.

If you really need that refund, just file your taxes early. Refunds come back pretty quickly if you file in January or February instead of waiting for April. Or, you are really better off getting a cash advance on your credit card. Or selling a few things on eBay. The problem with short-term, high interest loans is that they are often a “last resort” for people who have no other options. But if a person has no other options, how will they pay off the loan?

Learn more about refund anticipation loans at AFFIL.