Tax Refund Anticipation Loans May Be More Costly Than Waiting for the Money

tax refund anticipation loans
tax refund anticipation loans

It might be tempting to take out a refund-anticipation loan to get quick cash, but in some cases the time these high-interest loans might save doesn't make up for the money spent on fees.

"Taxpayers should be wary of refund anticipation loans, and resist the temptation of getting only some of their money today," Thomas R. Calcagni, New Jersey's Acting Director of the State Division of Consumer Affairs, said in a statement. "Instead, they can receive their full refund in just three weeks or less by filing their tax return electronically and opting for direct deposit to their bank account."

New Jersey was among governments and business groups warning consumers about the loans and the high interest rates and fees connected with them. The Center for Responsible Learning said the annual interest rate for refund loans can be from 50% to 500% and typically also include administrative fees. The group also warns if the amount of the tax refund changes or the IRS denies the refund, the consumer is still on the hook for the loan amount.