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San Diego, CA. Tax refund time is here
again and most of us are anxious to get back from the
government what we feel is coming to us. Some of us, in
fact, are so anxious that we will foolishly pay a high
premium to get our refund back just a couple of days
earlier.
This early refund offer is called a "Refund Anticipation
Loan" or RAL, and is a loan that is borrowed against
your expected tax refund. It is a very short-term loan,
arranged by your tax preparer through a bank. The loan
is repaid when the IRS sends your full refund to the
bank.
These loans are EXPENSIVE! According to a report in 2005
by the Consumer Federation of America and the National
Consumer Law Center, the loans cost about $29 to $120,
depending on the size of the refund. That means the
interest rate on "RAL" loans could range from about 40%
to over 700% APR (Annual Percentage Rate of interest).
An average refund is about $2,150, with a typical
finance charge of $100 for a refund anticipation loan -
a 178% APR. Additional fees for tax preparation,
electronic filing, or check-cashing can double or triple
that cost. If you are not careful, you will be spending
a good portion of your tax refund before you even get
it!
And what exactly does a RAL get me? A typical RAL loan
gets your refund to you in about 1-4 days compared to
7-10 days with electronic filing and direct deposit to
your bank.
There are other tax refund loans called "pay-stub RAL's"
or "holiday RAL's". These loans are offered before the
taxpayer receives a W-2 and are based on his latest pay
stub which indicates the estimated tax return. However,
the estimated amount may not reflect pre-tax retirement
deductions, or money withheld for child support or
taxes. The tax payer will have to pay the full amount
estimated on the pay stub whether or not the refund is
large enough to cover the cost of the loan and fees. Pay
stub RAL fees are most often as high as other RAL's.
Remember, it was not long ago when for 29 cents we all
mailed in our return and waited months to get our
refund? It was not so bad. Checking the mail each day
was kind of fun!
You and I work too hard for our money to pay such a high
price just to get our refund a few days early! Smart
consumers will avoid these Rapid Tax-Refund Loans like a
bad habit!
Source: Adapted from an AskMrG Web Library article and a
January Advisory Bulletin from the Iowa Attorney
General.
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About the ICFE:
The Institute of Consumer Financial Education (ICFE) was founded in 1982 by the late Loren Dunton (creator of the Certified Financial Planner (CFP) designation). The ICFE is dedicated to helping consumers of all ages to improve their spending, increase savings and use credit more wisely.
The ICFE is an award winning, nonprofit, consumer education organization that has helped millions of people through its education programs and resources. It publishes the Do-It-Yourself Credit File correction Guide, which is updated annually. The ICFE has distributed over one million Credit/Debit Card Warning Labels and Credit/Debit Card Sleeves world wide.
The ICFE became an official partner with the Department of Defense/Financial Readiness Campaign in June of 2004.The ICFE was an active partner in the California Student Debt Resource Awareness Project (CASDRAP) which resulted in a new web site: (studentdebthelp.org). CASDRAP disbanded in 2010, shortly after the web site project was completed. In 2011 the ICFE assumed the single sponsorship of the (studentdebthelp.org) web site and is now responsible for its content and operation.
The ICFE is also an on-line help for consumers who spend too much. ICFE's spending help was featured in PARADE Magazine in the Intelligence Report section. The money helps and tips are from the ICFE's Money Instruction Book, our course in personal finance.
Visit the ICFE's other web sites at: www.icfe.info and studentdebthelp.org. Both sites helps consumers and students with mending spending, learning about the proper use of credit, budget and expense guidelines, how to set up and implement a spending-plan and also how to access financial education courses and how to teach children about money. Other ICFE services include: Ask Mr. G, a free eNews, and an online resource center for students, parents and educators, plus financial education learning tools and a book store.
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