Prepayments can be more dangerous than you think

Tax season is a long-awaited season, but it is scary. Whether you owe the state or the government owes you something, there is usually some degree of uncertainty. Last year, this uncertainty took the form of deferred reimbursement for at least a quarter of a million households. According to a report from the Taxpayer Advocate Service (TAS), an IRS-affiliated organization that helps protect consumers, the Internal Revenue Service (IRS) marked its efforts in fraudulent refund activities with approximately 1.1 million tax returns for his investigation. contain. Unfortunately, a problem exposed approximately 275,000 tax returns for at least 40 days. “These delays caused difficulties for several taxpayers who were sure of their refunds and had to contact TAS for assistance,” said the report.No one wants to spend hours browsing through complicated tax documents, waiting weeks or endlessly for that coming reimbursement check, especially in times of financial difficulty. Maybe your rent is late (or late), your credit card bills after the holidays have accumulated, or your student loans are chasing you.

If this sounds like your situation, you are not alone. The National Center for Consumer Law, a nonprofit organization, estimated in 2018 that 1.9 million taxpayers had applied for tax refund loans, which the center said “developed in favor of taxpayers who expect high refunds. “

If the idea of ​​a late repayment overwhelms you, a tax refund loan may be an option. However, make sure you know all the facts before deciding on this type of financial product.

What is a tax refund loan?

Essentially, tax refund loans work like many other prepayment services. Financial institutions that offer tax refund loans take the amount you expect from the government and give you a short-term loan based on that number. These types of loans are usually available between December and April of a given year. When your actual repayment arrives, you can use this money to repay the loan.

But a tax refund loan advance is not a magic time machine for your money. Unlike prepaid legal tax refund services offered by many tax preparation companies, tax refund loans can be problematic for a number of reasons. First and foremost, if you take out this type of loan, you will get repayment of your repayment much lower than what you would get if you expected it.

Tax relief loans are not a consumer-friendly product and are generally the product of large businesses,” said Jacob Dayan, CEO, and co-founder of Community Tax. These prepayment loans often have very high-interest rates and unnecessary interest rates. Submit and modify checks, and they ask you Submit your taxes to the department or company that offers the loan. “

Dayan also notes that he will not be entirely sure of the amount of his income tax refund until he has received his check or deposit. If it is not enough to cover the personal loan amount, the difference is probably still pending.

Are Tax Reimbursement Loans Safe?

It depends. If you get stuck on a prepayment loan, you may have trouble paying your debts. With that in mind, your credit is no different from the types of dangerous bad credit and loan applications that less reputable lenders offer throughout the year. There are legitimate tax advisers who offer prepaid loans to taxpayers at no cost or interest. These personal loans can take the form of a prepaid debit card.

There is, of course, a problem: you can only get the deal if you use the tax preparation service that the loan offers to process your tax return. Although there may not be any fees or interest directly related to the loan amount.