Avoid Early Tax Refund Loans like the Plague

If you don’t do your own taxes and take them to a preparation service such as H&R block, you will probably be asked if you’d like to get your refund money through one of their “easy refund loans.” Essentially, you are borrowing money against the proceeds of your tax refund check whenever it arrives in the mail. The idea of getting one’s refund money right away sounds nice, but in practicality, they are one of the biggest rip-offs that one can sign up for.

If you sign up for a refund loan, you’ll pay a fee, probably somewhere from $10.00 to $30.00 so that you can get the money right away. The fee itself doesn’t sound too unreasonable, but if you were to calculate the interest rate that you would be paying on the loan, you would find out that you’re paying over 700% in annual interest on the loan

H&R block was recently sued because of the refund loans that they offer. The complaint said that the loans were deceptive, because the refund loans were only a few days faster than getting an e-file return, which takes about 7 days to return. Why would anyone pay 700% interest on a loan just to get their refund loans a few days earlier? H&R block eventually reached a $5 million settlement with the state of California in the suit. If you’re offered a refund loan, just say no.

If you’re getting a refund, there’s a bigger issue at hand. You really don’t want to be getting a big refund. By paying too much in taxes to begin with and getting money back from the IRS, you are essentially giving the government a tax free loan on your money. Instead you should adjust your W-2 forms or the amount that you send in through quarterly estimates so that the size of your refund is as close to zero as possible.