Predatory Lending Practices: Refund Anticipation Loans

Refund anticipation loans are commonly offered by tax preparation services. With this type of loan, you can get your hands on your tax refund before it is processed with the government. Although this might seem convenient, there are several disadvantages to using a refund anticipation loan. Here are a few things to consider before agreeing to a refund anticipation loan.

Interest Rates

Perhaps the biggest problem that most people have with refund anticipation loans is the interest rates that are charged for them. Since you are only borrowing the money for a short period of time, it may not seem like the interest is that high. However, when you calculate it out over the course of a year, it can be substantial. Some of these loans end up costing as much as a 200 to 300 APR. Therefore, the cost of the loan is usually much greater than any benefits that you receive from it. Unless you definitely have to have the money as soon as possible, the cost of the interest for this loan makes it very undesirable.


In addition to the high interest rate of the loan, you will have to pay some substantial fees in order to get the loan. These fees might be called application fees, processing fees or origination fees. However, it all amounts to your paying more money for the loan. Since the loan is over a short period of time, the fees may not seem that excessive. However, it all adds up to eat into the amount of your refund that you actually get to keep.

Lack of Explanation

Another problem that many people have with refund anticipation loans is that the people that offer them do not explain them to their customers. Many of them will try to talk their customers into these loans with a minimum of information. Most of the people that get these loans have no idea how much money they are paying for them or the terms that are associated with the loan. Whenever you have a situation with uneducated consumers, it is not good for the overall loan process. Many users of refund anticipation loans have reported issues with the lack of communication about these types of loans. In fact, many refund anticipation loan users say that they would not consider using them again now that they know what is involved.

Repayment Responsibility

With this type of loan, you will be assuming responsibility of repayment. If for some reason the money does not get to the company that issued you the loan, you will be responsible for repaying it. Sometimes, there will be a discrepancy between the amount of money that was lent to you and the amount of money that was paid to the bank from the government. If this happens, you may be penalized with late fees and have to come up with the money on your own. Many people do not realize this going into the refund anticipation loan process, and it comes back to hurt them in the long run.

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