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Tax refund loans, also called "instant refund loans," or "refund anticipation loans," target lower income consumers, but many other moderate-income families fall victim to these offers, as well.   For a loan fee ranging from $30 to $115, you receive a loan for the amount of your refund (usually up to $5,000) within one to two days. When your refund is received in a special bank account set up by the lender, the loan is repaid.

Cash-strapped taxpayers have paid outrageous loan, administrative and processing fees, essentially borrowing their own money, to get refunds only one or two weeks sooner than waiting to receive them from the IRS.  

So, what should you do if faced with the need for fast cash?

Rather than paying such an exorbitant fee to receive your income tax refund a week or two earlier, know that there are no-cost or low-cost alternatives:

  1. If you need a quick refund, use the IRS' electronic filing option, which will deliver the refund in 2 weeks or less. Electronic filers who have their refund deposited directly into their checking account can receive their refund within ten days of filing. If you don't have a bank account, you'll have to wait a bit longer to receive your check in the mail.

  2. Reduce your income tax withholding by filing a new form W-4 with your employer and claim more withholding allowances. Since more money will be coming your way each pay period, consider having money automatically deducted from your paycheck and deposited into a savings account.

The IRS offers a "Free File" program for taxpayers with Adjusted Gross Income of $50,000 or less.  This program allows millions of Americans to have their tax return prepared and filed electronically at no cost. Seventeen companies provide these services through an alliance with the IRS. Eligibility varies from one company to the other but is based on factors such as age, adjusted gross income, and state of residence. For information on the "Free File" program, visit the IRS Web site.

When you use these free tax filing services, you'll see prominently displayed ads for refund loans. If you're tempted, remember that you'd be paying the equivalent of an interest rate percentage in the hundreds or even thousands. Perhaps that $100 fee doesn't seem like much right now, but consider it could pay 2 months of an average cable TV bill if not spent taking out a loan on money you'll receive relatively soon anyway.  Unless ten days or so will make the difference between losing your home to foreclosure or something equally as drastic, try not to fall for these outrageous offers.

Check out the Consumer Law Center's brochure "Don't Pay to Borrow Your Own Money" that includes tips for avoiding the need to take out a tax refund loan.  It's available in English and five other languages.

Did you know that you can check on the status of your tax refund?  Access this secure Web site to find out if the IRS received your return, and whether your refund was processed and sent to you.