Winsett: Refund anticipation loan may deepen hole

Winsett: Refund anticipation loan may deepen hole

February 17th, 2012 Jim Winsett in Business Around the Region

Q: I will receive a refund when I file my income tax this year; we need the money right away. Do I have options for getting my money immediately?

A: Income tax preparers offer refund anticipation loans to allow people to receive their tax refund proceeds immediately.

However, the Better Business Bureau serving Southeast Tennessee and Northwest Georgia is reminding people that such loans are not an actual refund from the IRS, but rather a short-term loan from the company.

According to the Consumer Federation of America, the interest rate and administration fees on refund anticipation loans can translate to an annual percentage rate of 149 percent for a 10-day term.

BBB advises that such loans may do more harm than good and in most cases are not worth the instant access they provide. That is a tremendous amount of money to spend to borrow your own money for two weeks.

Loans made based upon your estimated refund from the IRS are made by the tax preparer and are not an actual statement from the government.

As a result, your refund could actually be less than the amount of your loan. This means you may end up owing the tax preparer more money than you received in your refund.

Some people believe they can't wait the two weeks for their refund because of debts and bills that need to be paid.

However, a better option than taking a RAL is to work with debt collectors and let them know your tax refund is on the way.

Losing a portion of that money to a short-term loan only puts you further behind.

TAX FILING HELP

Low-income taxpayers have a number of options for free tax preparation, including Volunteer Income Tax Assistance (1-800-906-9887 or www.irs.gov) and AARP Tax-Aide sites (https://locator.aarp.org/vmis/sites/tax_aide_locator.jsp).

Many VITA sites also offer services to help open a bank account or get a low-cost prepaid card, which enables taxpayers to get fast refunds without paying a fee. Free tax preparation also may be available on military bases, and since service members are required to have bank accounts, they are able to benefit from the speed of electronic delivery of their tax refunds.

LOW-INCOME E-FILING

Other options available to consumers are Free File - which offers free tax preparation for people whose income is $57,000 or less - and E-file, both of which allow individuals to file their taxes electronically and have their refunds direct deposited. Visit www.irs.gov/efile for more information.

While this entire process usually takes 10-14 days, people who take advantage of these services will receive 100 percent of their money and not have another loan to pay off.

The National Consumer Law Center reports this is the last tax season any banks will be offering RALs. However, It is possible that some smaller payday lenders, which until recently have not had much federal oversight, may continue to offer some version of the loans.

Get answers to your questions each Friday from Jim Winsett, president and CEO of the Better Business Bureau Inc., which serves Southeast Tennessee and Northwest Georgia. Submit questions to his attention by writing to Business Editor Dave Flessner, Chattanooga Times Free Press, P.O. Box 1447, Chattanooga, TN, 37401-1447, or by e-mailing him at dflessner@ timesfree press.com.