Are Rapid Refunds Worth It?

Are Rapid Refunds Worth It?

What’s the hubbub with rapid refunds?  That’s all you hear about around tax time.  While you do get the tax refund you are owed in record time, these rapid refunds may not be all that they are cracked up to be.  Read below to find out all about rapid refunds and the ins and outs of the process.

What is a rapid refund?  Rapid refunds, according to the commercials, are the way to go if you want to receive your tax refund on the spot for a small fee.  It would be nice and all, but why would you need the money that fast?

Depending on the circumstances, some families live from paycheck to paycheck.  At tax time, the big bolus of cash is a welcome sight when there are bills to pay and mouths to feed.  Well known tax centers like Jackson-Hewitt or H&R Block can file your tax forms and sign you up for the rapid refund program.

Simple, isn’t it?  Let’s look a little deeper.  Rapid refunds are actually refund anticipation loans (RALs).  And as with any loan, there are always finance charges and interest accrued.

We’ve heard of refund anticipation loans as well.  Most people hear those words and they think, “No, I don’t want to take on a loan.”  But if they hear “rapid refund”, they are on board.  The reason is that people don’t equate a refund with a loan.  In our minds, one is better than the other.

The reason for the name change is that people felt defrauded by the advertising.  If they had known it was a loan, they would not have taken advantage of the offer.  At the onset, the interest rate charged for one of these loans was staggering.  To make matters worse, the people who seemed to be targeted were low income earners receiving the earned income tax credit (EITC).

The majority of people taking advantage of this offer didn’t have a qualified bank account.  With direct deposit, taxpayers don’t have to wait as long to receive their refund.  It can take several long weeks or months to see a check in the mail from the IRS.

The rapid refund program allowed families in need of the money to get it sooner rather than later.  The amounts of the refunds were several thousand dollars owing to the tax credit, so the taxpayer didn’t notice the exorbitant fees being charged.  When the loan was paid back right away, the interest rates were still high.

What was a little known fact is that electronic filing can have a refund in the hand of the taxpayer in two weeks.  To me, that’s fast.  I’m used to waiting for months to see my refund.  If you don’t have a computer, a tax preparer can file it for you with the IRS website.

Those without a bank account can still file electronically and have a check mailed.  The refund will return faster than the paper filing method.  Credit unions are also an option for direct deposit in lieu of a bank.  Credit unions require as little as $25 in share accounts to keep them open.  These types of accounts are available through many workplaces, church affiliations, and other organizations.

There are more palatable options for receiving a quick refund other than taking out a refund anticipation loan.  Consider all of them before signing on the dotted line.