Your tax refund is likely to be late – should you get a refund advance?
The IRS began processing tax returns on February 12. The people who produce the earliest tend to be the ones to whom refunds are owed, especially the Working Income Tax Credit and the Additional Child Tax Credit. This year, this group includes people who have been eligible for stimulus payments but did not receive their money.
The agency said it would start sending funds to filers in early March, which is a long wait in the event of an economic crisis. Mail delays, weather-related closings and high demand can make the wait longer than usual.
Rather than wait, many people turn to early loan repayment or other cash advance programs offered by tax preparation companies. These are generally structured as loans which will be repaid on repayment. Unfortunately, programs often come with very high interest rates and fees.
The high rates and fees are particularly frustrating because the loan term is short (rarely more than two months in progress) and backed by a virtually certain collateral – the repayment itself. The current Treasury bill rate is 0.07%. These loans present a similar risk because they are backed by another government obligation, repayment.
By all means, if you can, avoid repaying loans early. If you can’t avoid them, Marketwatch recently looked at the costs of various tax refund advance programs and found the following:
Prepayment check programs generally bear no interest, but there are fees associated with them. A $ 35 fee on a $ 100 repayment is a very high interest rate since the money is only borrowed, but if you are entitled to a large repayment the fee is a lower percentage. These are structured as temporary bank accounts from which taxpayers receive their refund amount, less fees.
Prepayment anticipation loans are actual loans that must be repaid when repayment is received. They bear interest based on the term of the loan and the rates often exceed an annual rate of 36%.
Refund debit cards are credited with the refund amount and then debited when the refund is received. These often have lower fees because issuers collect a merchant fee every time they are used.
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This article originally appeared on GOBankingRates.com: Your tax refund is likely to be late – should you get a refund advance?