16 January 2006

Never, Ever Take Refund Anticipation Loans

Ah, the time of year when H&R Block and other accountants pray on those that hire them to prepare their returns. Their predatory technique is the Refund Anticipation Loan.

The Refund Anticipation Loan is sold as a "win" for the consumer. You don't have to wait the six weeks to get your tax refund. Woohoo! Right? Wrong.

The interest and fees for them - which can run 30 percent or higher of the loan value

Let's be generous and assume it takes six weeks to get a refund on a filed 1040 (with electronic filing and direct deposit I got mine in two weeks last year). 30% of the loan value for a loan of six weeks results in an annual rate of interest in the range of 250%. Would you accept a "loan" with a 250% annual percentage rate (APR)?

While not as bad as payday loan outlets that prey on the poor (who often have APRs in the 1000% range) the Refund Anticipation Loan is about the worst debt you could have (unless you are H&R Block).

To it's credit, it appears that H&R Block has taken some of the criticism and changed their procedures. Have they stopped offering Refund Anticipation Loans? Well, no. It's a lucrative business after all. They do require all preparers to go though a five-step presentation explaining all options. Have any readers gone through this presentation? How is it actually presented?

Never, ever take a Refund Anticipation Loan. You'd even be way better off to carry credit card debt than take on one of these. And that should tell you how horrible these "loans" are.

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