Springboard Warns Against Tax Refund Loans

Share Article

Tax Refund Loans or RALs can be tempting to consumers expecting a refund. But these loans are costly and consumers should consider other options.

You are in need of cash and anticipate getting a nice tax refund. Unfortunately, the refund could take several weeks and you need the money now. If you are impatient, a refund anticipation loan, or RAL, could be quite a temptation. Many banks and tax preparation service providers offer this as an option, but it comes at a cost to desperate consumers.

According to the Consumer Federation of America, in 2004 Americans paid approximately $1.6 billion for high-interest tax refund loans, and received monies only slightly more quickly than if they had filed electronically or used direct deposit. Those who offer RALs typically charge from $30 to $100 for loans that can last up to 10 days. Depending on the length of the loan, RAL borrowers often pay as much as 19 percent interest or more on a one-month loan.

Springboard, a nonprofit consumer credit management organization, strongly recommends consumers avoid applying for RALs.

"Many consumers can easily succumb to the desire to obtain quick money on the spot with a RAL," said Dianne Wilkman, President and CEO of Springboard. "But what they need to understand is that RALs, like payday loans, are very expensive short term loans with high price tag interest rates."

To avoid applying for a RAL, Springboard encourages consumers to consider the following:

Electronic filing - File online and avoid the traditional paper filing through the mail. If consumers "e-file" they can avoid unnecessary delays of their tax refunds in as little as 10 days versus the six weeks for returns filed by mail.

Educate yourself - Take control of your taxes and get tax smart. If you are using a tax professional, ask about any deductions you’re not sure about. Organize your financial records and keep tax-related items together for easy access at filing time.

Utilize tax software - Look into tax preparation software, such as TurboTax, to help identify deductions you may have not known you qualify for and the program does the calculations for you. Tax preparation software can make doing your taxes faster, easier and more convenient.

Use your refund wisely - Once you get your refund put it to good use. Pay off credit cards or build up an emergency stash. Do not give into the impulse to pay for vacations, home entertainment systems or high priced appliances.

"Consumers who will be receiving a tax refund want them as soon as possible because more often than not they have already spent the money," Wilkman said. "However, consumers need to know that a RAL will only add to their existing debt."

About Springboard Nonprofit Consumer Credit Management

Springboard, a nonprofit credit counseling and education organization founded in 1974, offers assistance with money management and budgeting through confidential counseling, debt management and education programs for financially troubled consumers. Springboard is accredited by the Council on Accreditation of Services for Families and Children, signifying high standards for agency governance, fiscal integrity, counselor certification and service delivery policies that ensure low-cost confidential services performed in an ethical manner. Springboard is a member of the National Foundation for Credit Counseling. Springboard has counseling locations throughout Southern California offering face-to-face, online and nationwide phone counseling services. For more information on Springboard, call 1-800-947-3752 ext. 702 or visit their web site at credit.org.

###

Share article on social media or email:

View article via:

Pdf Print

Contact Author