BBB says don't pay extra to borrow your own money

CHARLOTTE — With consumers experiencing financial challenges, more people are doing their taxes early because they need their refunds now.

This urgent need is leading to booming business for Refund Anticipation Loans (RAL) also known as "money now loans." A refund anticipation loan is an advance based on the amount of your refund, less fees and interest charged by the tax preparation service offering the loan. While RALs might be a good source of instant cash, the Better Business Bureau warns that they come at a high cost.

The National Consumer Law Center found that the effective annualized rate (APR) for a refund anticipation loan can range from about 50 percent to nearly 500 percent and some companies tack on additional administrative fees.

"Taxpayers who need their tax refund money right now may not consider that their instant refund comes at a high price," said Tom Bartholomy, president and CEO of The Better Business Bureau of Southern Piedmont. "If taxpayers filed online, they would receive their refunds in approximately ten days and would save a substantial amount in interest and fees incurred with a refund anticipation loan.

Instant refund loans have come under scrutiny in recent years. The IRS is considering the need to create regulations and restrictions governing these types of loans. A representative from one of the leading tax preparation services in the nation, H & R Block, said in a written statement to MSNBC.com, "we believe the best option for our clients is to file electronically and receive their refund via direct deposit, rather than take out a refund anticipation loan."

If you are considering an instant refund loan, the BBB offers the following advice:

Why not e-File and use Direct Deposit? The fastest and most secure way for you to get your refund is to file your taxes online and then allow a direct deposit of the refund into your bank account. You can have your refund money in eight to 15 days.

Don't fall for the "convenient" debit card. Some tax preparers offer to provide instant refunds on "convenient" debit cards. However, these cards include hidden fees, as high as $20 per transaction, and can have limits on how much money you can access, which means you would incur the high transaction fees over and over again.

If you absolutely need your refund now, shop around for the best deal. Fees and interest rates for RALs vary by tax preparer.

Check with the BBB first. Before you sign a contract, be sure to check out the tax preparer's record of integrity and performance at www.bbb.org. It's fast, easy and free.