The problem is that the lender fees associated with RALs can translate into annual percentage rates (APR) of about 60 to 650%, far greater than the cost of other kinds of loans. RAL's also are more likely to negatively affect the working poor, hitting them at a time when holiday purchases made on credit are about to hit their wallets.
"Ironically, many people don't know that they can get their actual tax refund in as little as two weeks if they file their taxes electronically," said Bill Moak, President of the Better Business Bureau (BBB) of Mississippi. "If you can wait a few weeks longer, it makes good financial sense."
Here are three alternatives you may want to consider:
- Wait a couple of weeks.
If you go ahead and file your return electronically, your refund will be processed and in your hands with little or no additional charges. And, if you get your refund direct deposited into your bank account, it may be even sooner. Even if you have urgent bills to pay, is it worth it to take out a new pricey loan to take care of an old bill? - Consider reducing or eliminating your tax refund.
If you have received a tax refund it means that each paycheck you get is less than it could be. By making adjustments in your W-2 form, by increasing your “personal allowances,” you can increase your paycheck, so that you get more money spread out over the whole year, rather than in one lump sum at tax time. This means that, by the time you file your tax return, almost all of the money you would be borrowing against your tax return would already be in your bank account. - Get free tax assistance.
The IRS Volunteer Income Tax Assistance (VITA) program, which operates with IRS-trained volunteers, can be found in libraries, community centers, and other locations during tax time. For the nearest VITA site, call (800) TAX-1040.
