Refund Anticipation Loans

These loans are some of the highest cost loans that exist. A borrower pays anywhere from 40% to 700% depending on the lender and loan amounts. While this seems like a great option when you are on a tight budget, it may be just the opposite. You are due $4,500 for tax refund. You want your money 4 weeks earlier that it would normally be received so you obtain a refund anticipation loan. You have just now handed over $1500 so that you can have $3,000 only a few weeks earlier! Doesn’t seem worth it to me at all.

Luckily for those tempted by this bad financial option, the refund anticipation loans may no longer offered as there will be nobody to back the loans. The FDIC just ordered the underwriters who back these loans to stop backing these controversial loans. The FDIC’s argument is that the loans themselves are “unsafe and unsound.” The loans are now even more so unsafe and unsound because the IRS no longer provides bank it debt indicator. This debt indicator was a tool used by the loan providers used to determine whether a taxpayer, soon to be borrower, had outstanding tax liabilities that could be garnished from a tax refund which would result in the loan provider not being paid back the loan from the expected tax refund if it is not received.

People who are in support of refund anticipation loans state that the one-time fees help deliver money quicker to those people who always live paycheck to paycheck. The refund anticipation loan supports argue that if these refund anticipation loans are not available to these people that live paycheck to paycheck that they would simply just seek the money from other sources with possibly even higher interest rates and fees.

Refund anticipation loans however should become less necessary as IRS has started offering direct deposit options for tax refunds often within 7 to 14 days. The IRS’s program offering depositing refunds onto prepaid debit cards should also decrease consumers needs to refund anticipation loans. The ultimate decision as to whether you really need a refund anticipation loan may depend on your specific situation but it should be cautioned that you will have a significantly larger sum of money to help with your situation if you can simply wait a few more weeks. Couldn’t you wait a few more weeks in order to receive an extra $1,000+?