According to an article published by CNNMoney, tax refund anticipation loans that were once handled by banks are now being outsourced to non-bank lenders like payday loan companies. These types of companies are known for their outrageous interest rates, so it's not surprising that some taxpayers are now paying as much as 36% interest to get an advance loan on their tax refund.
Refund anticipation loans have become a growing trend in my social circle, and my husband and I even considered it once a few years ago. However, our experience wasn't a pleasant one, so we abandoned our plan, and haven't looked back.
This is why my husband and I decided against a refund anticipation loan, what the loan was going to cost us, and how we file our taxes now.
Why we decided against the refund anticipation loan
When we went to file our taxes we were trying to take advantage of an offer to get part of our federal tax return before we actually had our tax forms in hand. The company assured us the amount would be accurate based on my husband's last pay stub, so we agreed to file with them.
The problem began when they told us how much money we were supposed to get back. The total was around $2,000 more than we had ever gotten before, and nothing changed in our life to cause the increase. My husband knew something wasn't right, and decided to wait to file, and it's a good thing he did because the estimate was off by $1,800.
What the loan was going to cost us
At the time we were going to get a refund anticipation loan the company charged a flat rate fee of $299 for a $1000 loan, which is around 30%. Looking back now it doesn't sound like a good deal, but at the time it seemed like the way to go.
How we file our taxes now
This was the first time we used a tax preparation business, and we haven't used one since. We learned that our taxes are very basic, and that our deductions rarely exceed the basic allowed deduction amount the IRS gives us, so we just do our taxes ourselves. We use a free onlinee e-file service for our federal return, and mail our state return in every year. If we were to pay someone to do it for us it would cost $300 or more, but doing it ourselves is 100% free.
For us it makes more sense to wait 10 to 14 days for our return to be directly deposited into our checking account than to pay outrageous preparation fees. I firmly believe refund anticipation loans should be reserved for those who are in dire need of money, and not used as a way to get spending money quickly.
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