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Yet another reason to avoid tax-refund based instant loans.
blaisepascal
When I worked for H&R Block a few years ago, one of the things which they had us push was "Refund Anticipation Loans", in which H&R Block would loan you the amount of your refund (less a fee) and then collect your refund instead. So if you were due a $1000 refund, they'd cut you a check in two days for $900, and pocket the $1000 refund when it came in.

It was a bad deal. Because H&R Block does electronic filing, you were pretty much guaranteed to get your refund in 2 weeks anyway (if you had direct deposit), and the fees that they take amount to some ludicrously high interest rate. The example I gave ($100 interest on $900 for 2 weeks) is at least 280% per year.

AFCU, the bank I volunteered to do taxes at had a much better deal: They didn't push their equivalent product, but: (a) if you didn't have a bank account to get the refund direct deposited into, they'd sign you up for one on the spot, no charge, and (b) if you really, really needed the equivalent to the refund anticipation loan, they'd have you fill out a credit app, and you'd get the same deal (money now, pay back with return), but at bank interest rates (like 12%apr) and much lower fees. Better, but still not as good as just waiting two weeks, which we encouraged.

I just found out, today, a more compelling reason to avoid the damn things...

About a week ago I filed my taxes (TurboTax, online). Based on my return (which included some unplanned for things like a student loan interest deduction), and when it was filed, I expected to receive a deposit of about one biweekly net pay next Friday. I had plans to put the car into the shop to receive some long-needed maintenance work (new fuel tank, new O2 sensor, exhaust repair) and get it inspected before the current one expires. And also get a pair of spiffy new passports for skitten and I. And a few other things. A nice little bonus, really.

I was surprised when I checked my bank balance today that (a) the refund was deposited yesterday, a week earlier than estimated, and (b) it was for about half of what I was expecting.

It seems that I have some unpaid past-due state taxes, which the IRS kindly collected for them.

All right; I can deal with that. No new fuel tank or O2 sensor, but just the necessary work to pass inspection. The passports may have to wait, or not. But things are not tight, just not as loose as expected.

However.... If I had gotten an refund anticipation loan, I'd probably have the car in spiffy shape and all the other stuff I'd have done with the money. And now I'd owe H&R Block a week's take-home pay for the unpaid portion of the RAL.

That's bad. The majority of clients who would have taken the RAL would have taken it because they were broke and needed the money now, rather than in 2 weeks. Unexpectedly owing H&R Block a chunk of change instead of getting their refund could be a serious hardship.

Granted, one of the causes for having part of the refund withheld include money owed for child support, so there is some reasonable lack of sympathy for those cases. Better H&R Block owed than the child (insufficiently) supported, but better still to wait two weeks and not have spent that refund already anyhow.

The moral: Don't get a RAL, it's not good news.

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