• BREAKING NEWS ABC shows live and on-demand -- Download the WATCH ABC app!

Refund anticipation loans may gouge wallet

February 5, 2010 12:00:00 AM PST
In this economy, cash strapped taxpayers want to get their tax refunds as soon as possible. Many of them will turn to a refund anticipation loan to get their money fast, but as Consumer Specialist Ric Romero points out, it's a fast way to a big expense.For the past few years, the number of refund anticipation loans has dropped. But this year, they're expected to make a big comeback and experts say that's not good.

In these tough times, quick money is very tempting and one way to get cash fast is through a payday loan, and at this time of year, a tax refund loan. But think twice before getting one.

Attorney Dorothy Herrera Settlage is with the Legal Aid Foundation of Los Angeles and she says that tax refund loans may get you your money in hours, but you're really borrowing your own money and paying a big price to do so.

"These aren't fast cash. What they are, are very expensive loans. When you look at the interest rates, even if they are small amounts, the interest rates are huge," said Herrera Settlage.

According to the National Consumer Law Center, interest on a refund loan can be from 72 percent on up to more than 500 percent depending on how much you borrow, and you may not be aware of it.

Last year, California won a couple of refund loan lawsuits. One was against H&R Block, and the other was against Liberty Tax Service for misleading advertising.

Your best bet is to be a little patient for your refund and use electronic filing with the IRS.

"E-filing is the best way to go, because when you electronically file, you can get your refund in as little as seven to 10 days if you choose direct deposit," said Tom Cavagnero, an IRS tax consultant.

Also, depending on your income, you may qualify for the Free Volunteer Income Tax Assistance program and free filing.

"Free filing means electronically, you're going to be able to use software that's available to you for free to do your return if you make under $57,000," said Cavagnero.