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Tax Refund Anticipation Loans:
Are they right for you?

Expecting a tax refund this year? Most Americans are; however, many don't want to wait to receive their money. Enter the tax refund anticipation loan, a short-term loan taken by taxpayers expecting to receive an income tax refund. While many view this loan as an option to receive immediate access to refund dollars, it's also known for high fees and interest rates. So, is a tax refund anticipation loan right for you? Let's explore them more closely…

Why do people get these loans?

Several reasons may contribute to the high number of people who get a tax refund anticipation loan (approximately one-half million in North Carolina):
  • Encouragement from their tax preparer to get the loan
  • Lack of understanding on the costs to obtain the loan
  • Financial stress from unexpected expenses or ongoing obligations
  • The desire to make a purchase
  • The convenience of completing the tax filing process immediately

Who makes up the refund loan market?

A small group of lenders make up the tax refund loan market, and the fee that is charged depends on when the loan is made, the mechanism used to disburse the loan proceeds, and how soon the proceeds are disbursed. Given a $2,000 refund loan, a taxpayer can expect to pay approximately $75-$175 in fees, which doesn't even include the cost of the initial tax preparation.

Weigh your alternatives.

While tax refund loans seem convenient, you may want to consider other alternatives:
  • File your tax return electronically, and have the refund direct deposited into your account—typically, within seven to 10 days.
  • Apply for a short-term loan from Local Government Federal Credit Union (LGFCU); then repay it with your tax refund.
  • Consider options that offer free income tax assistance, like the one that's available at LGFCU. Whether you're a member or not, you can have your basic income taxes filed free from January 30 – April 15 if you have a household income of $49,000 or less. If it's more than that, have your taxes filed at the branch for just $75. Then, if you're a member and you want your money quickly, get a low-fee tax anticipation loan from LGFCU. It's called Tax Refund Express, and at a rate of 12 percent, a typical 15-day loan would only cost approximately $12 based on a loan amount of $2,500.

Tax refunds are the result of your hard-earned dollars. Make every effort to keep as much of it as possible for you and your family. If LGFCU can assist you in any way, feel free to contact one of our financial counselors at 877.367.5428.