Avoid Refund Anticipation Loans

It’s a new year, and time to start thinking about taxes. Which means it is also time for another warning about refund anticipation loans.

Refund anticipation loans are very similar to payday loans; they are short-term, high-interest loans made in anticipation of future income — your tax refund, in this case. And they are a bad deal.

The best interest rate you can expect from a refund anticipation loan is around 36% APR. That is two or three times the rate someone with decent credit can expect to get from a credit card. But APRs of 100% or more are still common. That means if you paid the loan back in one year, you would actually pay back twice the amount you borrowed.

In other words, the math doesn’t make sense. It is much better to just wait for the check from the IRS.