Payday loans get a bad rap sometimes. To be sure, you’re going to pay a hell of a lot more for a payday loan than you are for a traditional loan, personal loan, home loan or even a credit card. Payday loans charge interest rates that, in many places, can get as high as or even exceed 200 percent. While this translates to a fee of about $20 per $100 borrowed or so, it’s still a high rate if you were to keep taking out the payday loan over and over again for a period of a year.
OK, so 200 percent interest is pretty significant. It’s ten times most credit cards, and twenty times the interest rate of the most expensive mortgages.
What if we told you that there are loans out there charging ten times what a payday loan charges? That for these kinds of loans, you’ll pay as much as 2,000 percent? Would you believe it?
Well, it’s true. There is a worse deal than a payday loan. But, they’re usually only available during the first four months of the year.
Tax refund loans are sometimes also known as “refund anticipation loans” or “instant refund loans.” They promise people that, as soon as their tax paperwork is completed, they can have their tax refund. All they charge for that is a simple fee.
The problem is that this is actually a loan with a huge interest rate. If you have a refund of less than a thousand dollars but pay a $99 fee, you can be looking at a huge throwaway on the interest.
A growing problem
The use of these kinds of services is aimed at lower income families, but people in the middle class also fall for it. Around 12 million taxpayers took these loans last year, and paid around $900 million in fees for them. All to get their refund in a couple fewer weeks.
There are better ways to do all of this. One, of course, is to change your income tax withholding so that you just don’t get as much back. You’ll have your money during the year, instead.
The best solution, however, is patience. The IRS has greatly improved in terms of efficiency, and today it can take on an average less than three weeks to get your tax refund. If you file electronically and you have your refund direct deposited into your bank account, you can have it within as few as 10 days.