Chicago Bankruptcy Attorneys Caution Against Tax Refund Loans
I couldn’t believe my eyes when I looked at my finished tax return this week. For the first time in five years, I will be receiving a refund! Nothing relieves the stress of doing taxes like the realization that a check will soon be coming your way.
In fact, it can make you so blindly happy that you do not-so-smart things. For instance, had I walked outside immediately after finishing my taxes, I probably could have stepped right in front of traffic—with a silly grin still plastered on my face. But more likely, I could have fallen victim to a common loan.
You see, tax preparation companies aren’t just doing taxes nowadays—they’re also making loans. Refund anticipation loans. Here’s how it works: You find out that you’re getting a large refund. You’re already walking on air anticipating the money when your tax preparer says, “How would you like me to write you a check for that amount today?” Sure, you think, the only thing better than money in the future is money now, right?
Not exactly. Loans involve interest, remember? Let’s say the IRS plans to give you $2,000 back. Your tax preparer can write you a check today, but in a few weeks or months, you’ll owe them the original $2,000 plus $250 when your refund comes in—the equivalent of more than 500% annual interest!
And that’s not all. Loans also involve risk. What happens if your refund doesn’t arrive on time? Maybe it gets lost in the mail, maybe the IRS discovers a tiny error, but the end result is the same—a delayed check. You’re still responsible for coughing up that $2,250—the original amount plus interest—whether or not you receive your refund.
It’s a classic example of how quicker doesn’t always mean better. But fortunately, there is a fast way to get your money that also happens to be virtually free. If you opt to file electronically and choose direct deposit, you could have your refund in as little as 10 days. I realize that you may have already filed your taxes this year, and if you went the refund loan route, it’s probably too late this time. But you’ll know how to get your money’s worth next year.
And if you are desperate for a refund—or to receive one ASAP—it could be a sign that you’re carrying too much debt. Are you routinely out of money? Do you find yourself pulling out the credit card just to tide yourself over to your next paycheck? It doesn’t have to be that way. DebtStoppers can help. When you sign up for a free one-on-one debt analysis, our bankruptcy lawyers will take a personal look at your finances and identify the best methods for you to eliminate your debt. You can also browse the advice on our blog and website anytime for free, or send away for our complimentary Financial Toolkit. So if you find out you have a refund on the way next year, you can enjoy—not fear—the wait.