Every year millions of hard working Americans will walk into a tax preparers office to get their taxes done. A small subset of those hard working Americans will agree to a tax rebate loan, sometimes called a refund anticipation loan, without fully understanding how ridiculously expensive they are. Sometimes they aren’t well informed, sometimes they are simply strapped for cash, sometimes they just don’t do the math and don’t realize they’re getting the short end of the stick. Ultimately I believe the responsibility falls on the consumer to understand it because the tax preparation companies disclose everything. They tell you exactly what you’re paying, they don’t make the information difficult to find (I found H&R Block’s RAL information within two minutes), and it’s always on the consumer to be aware of what he or she is signing.
That being said, I feel that it’s my responsibility to at least write a little about how absolutely ridiculous these types of loans are. According to the IRS, if you e-file and select direct deposit as one of your options, you should get your refund in an estimated 8 to 15 days. Eight to fifteen days. That’s it! You could file right this second and get your refund in time to make rent at the end of the month. That’s how quick it is.
So, in order to get your own money back a little quicker, people are turning to loans? I had no idea how expensive they were until I looked at actual pricing information. Check out this H&R Block Refund Anticipation Loan pricing sheet  (I found this in two minutes, no joke). Let’s say you are going to get a $2,000 check directly from H&R Block, rather than waiting the 8 to 15 estimated days it’ll take for the IRS to direct deposit the funds to your account. How much will you pay?
- Activation Fee: $29.95 right off the bat to even play the RAL game.
- 36% APR: That’s the interest rate of the loan you’re getting! Thirty-six percent APR! People scream about how credit card companies are predatory and the highest rate they charge, when you start defaulting on payments, is 29.99%! (That’s Citi’s default rate)
- Check Processing Fee: Another $20 fee to “process” your check.
So, on a $2,000 check they estimate that it’ll have fees of about $71.41, or about 3.5%. $71.41 is the price of a nice dinner for two. $71.41 towards your credit card debt will find you closer to freedom. Paying $71.41 to borrow money from your future self (in 8-15 days too)… that’s an outstanding ripoff. The lower the amount you get back, the more exorbitant the fees look. If your RAL is only for $200, then you’re paying $52.09 in fees which makes it an unfathomable 26%. That’s like me reaching into your pocket and swapping out all your twenty dollar bills with fifteen dollars bills. You think that sounds ludicrous? Think of how many people accept those fifteen dollars bills!
Are you really that strapped for cash? If so, that’s totally understandable. The solution isn’t a refund anticipation loan, the solution is to file your taxes right this very second. You can find an IRS sanctioned tax preparer that will help you prepare and e-file you taxes for free  (if you qualify). Then, the next step is to adjust your withholdings so you aren’t over-prepaying your taxes  next year. The last resort is a refund anticipation loan.