Those who have accountants file their tax returns and also have a tax refund due them are usually given their money in two different ways: The “tax refund loan” and rapid refund. The question here is which of the two of these is better? Which one should you do and which would should you not do? Is there more to making a choice? You might be surprised at the answer.
Tax Refund Loans
The way a tax refund loan actually works is a tax preparer or a lender will actually assume the risk of receiving the money and loan the taxpayer the money out of their own funds. When and if the IRS refunds the full anticipated amount of money the taxpayer appears to have overpaid, the tax preparer or lender will reimburse themselves with the money the IRS refunds on the tax return. Tax refund loans provide a valuable and highly appreciated service to many tax payers who are in urgent need of money. Some just days away from being evicted from their homes or need to repair their car so they can continue to get back and forth to work. It is my opinion that Tax refund anticipation loans have actually been inappropriately labeled by some as predatory lending by a few who are ignorant and unfamiliar with the risk and costs involved with making these types of tax refund loans.
When the tax preparer completes or the lender has proof that your return has been transmitted to the IRS, they are anticipating that you will really receive that particular amount of money. Approximately 10% of individuals choose this so that the money can be in their pockets immediately. However, there is a hefty price associated with taking this loan. Although it will only be about 10 days before the tax preparer receives the money, they are charging high fees and that can cost big bucks as a percentage to the taxpayer for this short-term loan.
It is estimated that Americans are paying millions each year for tax refund loans in order to have their money in their pockets immediately. Unfortunately, lower income people tend to be the ones at risk because they have a greater need to have the money immediately. This is a program that was formed in 1975 and is said to target those who receive the earned income credit because of the increased amount of the refund. This increases the amount of interest that is charged.
Yes, it may seem silly for someone to pay to have their money right now, but it happens a lot. Honestly, isn’t that what we do when we purchase goods and services through any type of loan? We pay a premium to “Have It Now”. Most tax payers who actually take tax refund loans are very grateful they are available because they need the money urgently. They are very thankful they exist and are very willing to fork over a portion of their cash to cover the fees associated with tax refund loans. I think the real question is is their need for the money really so urgent or is it a case of, “I Can’t Wait To Go On A Spending Spree”?
I for one have seen considerable contradictory information about a rapid refund. One type of rapid refund is a completely different story and does not constitute a loan. The other definition of a rapid refund is very similar to tax refund loans, whether it be simply a loan, or fancied up with a debit card. One does not put the money into a person’s hand immediately, but due to e-filing of the tax return and the faster speed by which the IRS may make your refund available, a person can have their money within about two weeks or sometimes less for a “Rapid Refund”.
Rapid Refund is frequently done through some accounting offices in the form of debit cards. A debit card is provided and should be funded on a certain date. Once that card is funded, it is used just like any other debit or credit card. A person is also given a pin number so that they can withdraw cash from an ATM machine. Based on my research, debit cards are more typically associated with the type of rapid refund that resembles tax refund loans.
Refund money may also be deposited directly into a person’s bank account by the IRS. I find this a bit on the scary side since they can just “Take It Away” also. The debit card option is often given to those who do not have checking accounts. And for others, they prefer not to freely give their checking account information to the IRS (that would be me). Nevertheless, some tax preparers do not offer the debit card program, so it may be important for you to ask if a debit card is something that you may want.
Obviously, one form of rapid refund is the best financial management winner, although you won’t have the money in hand the very day you file your tax return. However, you will save money and you will still have your refund rather quickly. On the other hand, if you really are facing a financial emergency or just don’t want to wait you should opt for Tax Refund Loans.
Filed Under: Tax Refund Loans