Signs of Predatory Lending What to Watch Out For When You’re Shopping for a Loan

Signs of Predatory Lending Refund Anticipation Loan Rip-Offs Every tax season, millions of taxpayers borrow their own money at triple-digit interest rates.

Signs of Predatory Lending Refund Anticipation Loan Rip-Offs Sign #1: High Interest Rates The annual interest rate for the typical "instant refund" can range from 50% to 500% (depending on the fees charged and how long it takes the IRS to process the paperwork and issue the refund). These costly rates mean less money in the pockets of taxpayers.

Signs of Predatory Lending Refund Anticipation Loan Rip-Offs Sign #2: Additional Excessive Fees. In addition to a triple-digit interest rate, tax preparers and their partner banks will often also try to include additional “administrative” fees to their refund anticipation loans. These fees add up to more than $68 million per year in drained tax refunds.

Signs of Predatory Lending Refund Anticipation Loan Rip-Offs Sign #3: Promises of Instant Cash. In most cases, a tax refund loan only speeds up the tax refund process by a few weeks or less. With recent technological improvements in the IRS, tax refunds, a taxpayer filing electronically who elects to have their refund directly deposited into their checking account will receive their refund within two weeks.

Signs of Predatory Lending Refund Anticipation Loan Rip-Offs Sign #4: Guaranteeing a Larger Refund. Though not strictly related to a refund anticipation loan, taxpayers should be wary of any tax preparer promising a larger refund, particularly if such guarantee requires an additional fee.