Introduction It wasn't too long ago that the two major tax chains came up with the idea to promote what they called, "Super Fast Tax Refunds" or "24 Hour Tax Refunds".
Some of their clients actually believed that they had a special 'in' with the IRS that meant that the return would be filed and the people at the IRS would say, "Oh, this return was filed and H&R Spewitt's we've got to get them their refund now!" Three years ago there was a series of commercials promoting the speed at which the client would receive their refund.
Two guys in the lobby grasping the green cube in front of them as their hair whips around while race car sound effects emphasize the swiftness of their refund coming to them.
But there is no special relationship between the IRS and these chains.
The client does not get their tax refund quicker.
They are actually signing away their refund to a bank! But that's not what this product is.
And pressure from several activist groups caused these chains to begin to call them "Refund Anticipation Loans" or RAL's.
This product is actually a high interest loan based on the total amount of your tax refund.
This article is going to take a look at how much this product actually costs you the client and how a little patience can save you a lot of money.
The Way It Works Remember that these tax franchise offices only get revenue for four months out of a twelve month year, so any plan they can come up with to generate higher revenue for those four months, they can and will do! And don't get me wrong, this is America.
If there is a market for these services and others, these companies should have the freedom to promote and sell these products.
I am not a big fan of the check cashing places, nor am I a fan of the rent to own furniture and appliance dealerships.
They are extremely high interest and high payments oriented products.
I honestly believe that these institutions take advantage of I.
Q.
deficient people.
But this is America and they have the freedom and right to offer this type of service, even if it is taking extreme advantage of people who have no clue how to budget their income.
Nevertheless, the way the RAL works is that the client who is getting a refund purchases a bank loan so they can get their check the next day.
There are several fees attached to this 'quick' refund.
First, there is the 'bank fee'.
The 'bank fee' is the fee charged to the tax preparer by the bank providing this loan.
Usually the preparer company pays $12-15 for this and passes the fee to its clients by increasing it as much as $40.
That is pure profit to the tax prep franchise chain.
Second, there is the 'application fee'.
This is a completely arbitrary fee attached to the bank fee that can be as much as $50.
The 'cover-story' on this fee is that it is being used to check the credit of the client to make sure that they don't owe the IRS any money and as such would not be eligible for the rapid refund bank loan.
This is another pure profit for the tax prep chain as the banks are going to automatically check your credit with your social security number when your return is filed through the system.
And finally, there is the extremely high interest rate attached to what amounts to a ten day loan.
This interest rate calculated annually amounts to in excess of 300%.
No one with half a brain wants a loan at 300% interest.
And yet, people continue to ask for this loan.
So, if we calculate it all out.
$250 - $300 for the preparation fees, $52 for the bank fee, $50 for the application fee and the interest on a $5000 refund we have a grand total of $402-$452 with $152 being just the fees involved in getting your $5000 check the next day.
Now there is a NEW product called the Refund NOW Loan where you can get up to half of your refund before you leave the office.
This incurs even more fees and at a higher rate.
If you can just wait ten days, you can save yourself as much as $152! Sadly, the tax prep workers are paid a bonus at the end of the season based on the number of these 'products' that they sell.
The managers are paid a large bonus based on the number of these products they were able to 'push' onto the clients who come in.
The district managers and the owners all make out like bandits because these products are so profit rich.
So there is a tremendous amount of pressure on these workers to sell these 'loans'.
(The managers end of season cruise is counting on it) There are contests and promotions and as a result of these, I've seen normally good people resort to underhanded techniques to get these loans sold.
Conclusion The tyranny of the urgent will keep these loans available as many of the IQ deficient who fill their homes with pay per week furniture and appliances and use pay check advances to 'better' their lives will continue to use these services.
However, with a checking account, the turn around time for a direct deposit refund is only about ten days.
And many of these people cannot handle a checking account.
Sometimes, the only reason a client chooses this product is that they don't have the available cash to pay for their tax preparation immediately.
And if that is the case then the use of this product is not your only option.
Preparing your taxes online has become increasingly popular and costs as little as $50.
There is generally no charge for direct deposits and they too, take about ten days to complete.
This is money that is supposed to be coming to you.
Don't let the slick ads dupe you of what is yours.
Show a little patience and you can save a lot of money.
And if you can get a better handle on your day to day finances, then the use of paycheck advances and rent to own furniture will not be necessary.