Refund Anticipation Loan?

So I heard on the radio that H&R Block is offering Tax Refund Anticipation Loans…wow really? They aren’t the only ones but one of the bigger companies providing this service (and I use the term service very loosely).

I’m sure this has been around for years but I’ve never heard of such a thing. Here’s some info about Refund Anticipation Loans:

Simply put, you sign your refund check over to the company offering the Refund Anticipation Loan so that when your refund comes from the IRS, it goes right to them. In return, they advance you what the government should be giving you as your tax refund. You get your money now, and they get paid back later. There’s no interest, but there are fees for doing this, plus you have to know exactly what you will be refunded which kind of translates to having to have H&R Block do your taxes, and if there is a mistake or Uncle Sam doesn’t give you back as much as you anticipated, you will owe the company that money back.

The funny thing is they advertise that you can get up to $9,999 as a Return Anticipation payment. To be getting back that much in your tax refund seems pretty high, are they targeting doctors and lawyers here?

There is so much wrong here it just blows my mind.

First let me state that I am the guy that tweaks his W-4 each year to make sure he is giving the government as little as possible, thus keeps the refund check to a minimum so it doesn’t feel like a windfall of cash. And when that cash, whatever it is, comes in, it goes right in the bank and towards big goals like our recent car purchase, or towards paying off debt.

Second, I’ve seen what PayDay loans can do to someones life first hand. Once you start doing that, you just keep getting farther and farther behind. Like my bro said, “I’m borrowing from tomorrow to pay off yesterday”. That’s not a good situation to be in, and these Refund Anticipation loans are not too far off from a PayDay loan.

And worst of all, the refund Anticipation loan or check can take up to 15 days to be processed where if you e-file your taxes directly to the Government early enough, you can get your refund in almost the same time frame! If you wait till the last day of the tax season, you could be waiting up to 8 weeks, but e-filing and getting your tax refund direct-deposited is usually faster than the estimations given.

So when you get a Return Anticipation Loan or Check you are essentially paying a fee to get your refund just two weeks, if that, ahead of schedule? Needing to do something like is an even bigger sign of trouble than the loan itself if you ask me.

To quote another Pf blogger on the subject, Brad Chaffee says:

Think about how much that extra few hundred dollars will help you. If you’re saying with one breath you need money, but with the next saying you’re willing to give some of it up, that’s counter-productive.

What do you think? Are Return Anticipation Loans just more ways for people to get behind and in debt, or are they a good service?

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11 People have left comments on this post

» MoneyConeNo Gravatar said: { Jan 27, 2011 - 03:01:10 }

P T Barnum (probably) said: There’s a sucker born every minute!

Jesse MichelsenNo Gravatar Reply:

and I think he, or whoever said that, was right!

MoneyConeNo Gravatar Reply:

It would be interesting to know how many actually take this ‘loan’! Wonder if there are any statistics on this.

Jesse MichelsenNo Gravatar Reply:

Just Googleing for a bit more info on these loans I found thread after thread on forums about people complaining that the loans put them in hard times and were not really what they seemed. It seems enough people take the deal for them to bring it back each year 🙂

» Joe PlemonNo Gravatar said: { Jan 28, 2011 - 06:01:06 }

Like you said, these loans are wrong in so many ways. H&R Block should be ashamed of themselves for preying on people who trust them.

Jesse MichelsenNo Gravatar Reply:

they and every company low enough to offer this “service”

» MyMoneyMessNo Gravatar said: { Jan 28, 2011 - 12:01:46 }

What’s the old saying? “A fool and his money are soon parted.” Something like that.

It’s all about the marketing. H&R Block has been doing this for years and so have a few others. They promote, “get your money faster” and they count on the average Joe not doing his homework or actually reading the paperwork.

I’m with you on the size of refunds. If you’re getting more than a couple hundred dollars a year in tax refunds you should give yourself a raise by changing your withholding instead of giving Uncle Sam a no interest loan for a year.

» yesiamcheapNo Gravatar said: { Jan 28, 2011 - 02:01:08 }

Speaking as one who has done this once, I highly agree. And I was one of those suckers with a 9K refund. I needed the money like, TODAY and in the fine print it took one day before the government would have deposited my money anyway. Yes, I was a sucker and it cost me.

Jesse MichelsenNo Gravatar Reply:

I’m sorry to hear that. I’m sure you aren’t the only one but it feels worse since I know you. I wonder if the credit card reform that put more of the gotchas in clear view will extend to things like this

» Monroe on a BudgetNo Gravatar said: { Feb 2, 2011 - 08:02:13 }

This concept has been around since the early 1990s. I could see a reason for it then, when mailed checks took three weeks. But these days … why bother?

Jesse MichelsenNo Gravatar Reply:

Exactly. With e-checks being so efficient, there’s no reason to spend more than the cost of a stamp 🙂

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