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TAX TIP: SAY NO TO REFUND AND REBATE LOANS

April 07, 2008

The Tax Update believes Refund Anticipation Loans should be legal, just like other stupid forms of finance, like car-title loans and payday loans. Adults should be allowed to commit finance with other consenting adults, as long as the terms are all disclosed. They should then be allowed to face the consequences of their own foolish choices. Same goes for people who bought too much house and their foolish lenders.

But just because it's legal, say, to go to the bar, line up 10 shots of Jagermeister, and see if you can drink them all before "You Shook Me All Night Long" finishes on the jukebox, it's still not a great idea. Refund Anticipation Loans are in the same league.

Why are they so stupid? Let's start by looking at the IRS refund cycle chart, which tells you how quickly your refund will come for different filing dates:

What this means is that if you e-file and have direct deposit, you will have an 8 to 15-day wait to get your refund. A Refund Anticipaton Loan charges you a lot of money to get your money at most 15 days earlier -- at interest rates that run from 40% to over 700%.

There are always people willing to sell you a chance to do something stupid. When they try to sell you a Refund Anticipation Loan, take a pass.

The Tax Update is counting down filing season with a daily 2008 filing season tip through April 15.