At PayDayMax, customer service is always a high priority. Beyond providing our valued customers with great discounts on payday loans, we're also committed to informing our customers about the latest news on alternative options for credit. Recently, one of those options has come up in many news circles as potentially harmful to consumers. It's called a tax refund loan, and while it may serve as an easy credit alternative, it might end up costing you more than you thought.
A Tax Refund Loan, also known as a refund anticipation loan, allows a potential borrower to receive a loan based on their anticipated tax refund for the year.
How they work: Tax refund loans function to serve people who don't want to wait for their tax refund to be mailed or direct deposited. Instead, the borrower takes out a loan with the intention to repay it with the tax refund they receive at the end of the year. The loan amount is based on this anticipated amount. The lender opens up a one-time-use account for the borrower and deposits the loan into it. The borrower's tax return also is deposited into this account, from which the lender takes the loan amount and fees when the loan is due.
Many news sites like MSNBC, BankRate and Forbes recently reported that the IRS may restrict tax refund loans on grounds that they could encourage fraud. Consumer watchdog groups are concerned that these loans could be abused by unscrupulous tax preparers who might be tempted to inflate the refunds in order to collect higher fees. The result of this proposal would limit tax preparers from providing tax return information to lending companies that provided tax refund loans. Companies who specialize in tax preparation services such as H&R Block Inc witnessed their stock prices fall with the news of this possibility.
For customers who are a looking for a quick cash advance, the thought of using a tax refund loan for quick cash might sound like a great option. But there are a few things one should know about these loans. First, most people who take out a payday loan usually know how much they're going to have withdrawn from their next paycheck. This knowledge gives them a better idea of how much they should borrow. With a tax refund loan, the anticipated refund amount is not always guaranteed. The miscalculation of a tax refund could wreak havoc on a borrower's finances when the time comes to repay the loan.
Another problem with tax refund loans is that, according to BankRate.com, many consumers who take out tax refund loans do not have bank accounts. A payday loan from PayDayMax requires that the customer have an active bank account and at least $1000 in monthly income or deposits. This helps to ensure that customers who apply for cash advances are consistent earners who will not be strung out on debt.