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March 5th, 2009

“Don’t Pay To Borrow Your Own Money”

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Despite the dread that many associate with tax season, it’s one time of the year when many Americans get a handsome check for their efforts. With e-filing and direct deposit, the time it takes filers to get their tax return back has become quite speedy. Yet for some, the money still doesn’t come fast enough.

A Refund Anticipation Loan allows filers to receive a check from their tax preparer usually the next day. But the speed and convenience comes at quite the cost:

Refund loans that Davis used are issued by tax preparers such as Kansas City, Missouri-based H&R Block Inc. and Parsippany, New Jersey-based Jackson Hewitt Tax Service Inc. The loans can carry effective interest rates of 77 percent to 140 percent for the average refund loan of $3,000, according to consumer rights groups including the Consumer Federation of America and National Consumer Law Center.

What about those who are expecting a much smaller refund? According to WalletPop.com:

By the time you add up the loan application fees along with finance charges, rush fees and more, it’ll cost you a pretty penny to get an RFL. (Expect to pay $50 or more for a mere $200 refund!)

The National Consumer Law Center INC. (NCLC) has published a brochure entitled “Don’t Pay To Borrow Your Own Money, The Risks and Costs of Tax Refund Anticipation Loans.” The NCLC’s brochure provides filers with suggestions and alternatives to Refund Anticipation Loans.

As we mentioned earlier — and the NCLC agrees — file your taxes online, and select the option for direct deposit. The Center urges those without a bank account to establish one with direct deposit and avoid check cashers who will also charge a fee.

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About the HSH Blog

HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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