Thursday, 8 September 2011

Tax Return Loans are not a Good Idea?


Where to Apply and the Cost Involved in These Loans

Is a tax return loan a good idea when a regular refund can be received in approximately 8 days? For many in desperate need of money, it just may be worth the fees.

A tax refund is a good idea when there is an emergency such as an impending foreclosure on a home, but not to buy a new Gucci handbag. The major three tax preparers are offering loans through their sites, but with efile taxpayers can have their refunds in approximately 8-10 days.

The major tax preparation places that are offering tax help are H & R Block, Turbo Tax and Tax Act. Here taxpayers can also apply for a rapid tax return loan. Besides paying for the return to be filed, the person can also apply for a loan and receive the money in 2-3 business days.

Many times the unsuspecting taxpayer is not aware of the huge fees involved, including an application fee and interest that can be between 200-2000% calculated as an APR. But realistically how much is 200% on $1000 for 1 month? This would amount to $166.00.

Now for a ten day loan, take that figure and divide it by three and the loan will cost approximately $56. H & R Block was asked how these extremely high interest rate loans survive. They stated it was all due to impatience. Most companies are reporting between 225-264% being charged on these loans.


Electronic Filing Through the IRS

On January 15th the IRS officially opened the efile capabilities up. Millions of Americans will be able to file online if they fit into the income bracket allowed for a free filing. The person must make less than $57,000. It is a free service where the taxpayer may file their taxes and many main type of forms. Read about all the details of the rapid tax refund here.


How to Avoid Tax Return Loans

It only makes sense that a taxpayer should never have a huge return coming to them. They can adjust their withholdings so that at the end of the years there is a very minimal amount to be refunded. This is very easy to do through the employer.

Besides offering tax preparations, the tax companies also offer efile like the IRS. They offer tutorials and guidance in selecting and deducting the correct amounts. Even with a $50-80 dollar fee for this service it will save the taxpayer a lot of money over tax refund loans.

Who Offers Tax Refund Loans?

The major three companies also offer tax refund loans as well as many online websites. Once the tax preparation is done, the company works with a bank that actually grants the loans. The refund is sent to a bank account in the bank granting the loan and then the loan is paid in full. The average time for these loans to be paid in full is 10 days.

H & R Block does offer many plans and does not state up front what their fees are and claim to have many that have no out of pocket money, such as with their credit cards. It is up to the consumer to check out all claims by any company before proceeding with these advertised plans.


"Income Tax Refund Loans" About.com
MacDonald, Jay "Refund Anticipation Loans Can Carry a High Price." Bankrate.com