Beware Refund-Anticipation Loans

There are other ways to get cash fast without the high interest rates and fees.

What do you think of refund-anticipation loans?

I don’t like them. These loans quickly provide money equal to your tax refund, but they generally charge high interest rates and fees. A study by the Consumer Federation of America and the National Consumer Law Center found that taxpayers paid about $800 million in loan fees and other fees for refund-anticipation loans in 2008.

Some firms have lowered their rates for refund-anticipation loans over the past year, but they can still be quite high. In general, the effective annual percentage rate for refund-anticipation loans can range from about 50% (for a $10,000 loan) up to nearly 500% (for a $300 loan), when you include interest charges and refund account fees, according to the study.

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But you can get your refund almost as quickly without any fees or interest charges. If you e-file your taxes with the IRS and have your money deposited directly into your bank account, you can generally get your refund in fewer than ten days. There’s no fee for e-filing, and you don’t have to pay any interest. The IRS began accepting e-filed tax returns for 2009 on January 15. See our Tax Tip about e-filing for more information and for sites that can help you do your taxes for free.

No matter how you file your tax return, you will need to wait until you have your W-2 and 1099 forms and other documents from your employer, bank, brokerage firm, mortgage company and others so you’ll know how much you must report and can deduct when you file. But you should receive those documents by the end of January.

If you’re tight on cash and can’t wait for your refund, consider these 11 Ways to Get Extra Cash.

And wouldn’t you rather have more money in each paycheck instead of having to wait for a refund next year? If you got a big refund in 2009, use our tax withholding calculator to see whether you can adjust your tax withholding and boost your take-home pay for 2010.

Kimberly Lankford
Contributing Editor, Kiplinger's Personal Finance

As the "Ask Kim" columnist for Kiplinger's Personal Finance, Lankford receives hundreds of personal finance questions from readers every month. She is the author of Rescue Your Financial Life (McGraw-Hill, 2003), The Insurance Maze: How You Can Save Money on Insurance -- and Still Get the Coverage You Need (Kaplan, 2006), Kiplinger's Ask Kim for Money Smart Solutions (Kaplan, 2007) and The Kiplinger/BBB Personal Finance Guide for Military Families. She is frequently featured as a financial expert on television and radio, including NBC's Today Show, CNN, CNBC and National Public Radio.