Every day on the way home, we pass the Liberty Tax Statue of Liberty waving at us. I never have quite figured out why the Statue of Liberty wants me to do my taxes, but I get the idea that they want me to come in and find out.
The last time we passed them, though, I saw this sign:
REFUND ANTICIPATION LOANS
This sounds like bad idea on so many levels. I tried very hard to think of a situation in which this could be considered a good idea. I even called our local Liberty Tax branch to get some details about the offer.
In order to represent them fairly, I want to make it clear that I do not think this is an evil company, nor do I think they are in any way running a scam or anything improper. But I do believe that they wouldn’t loan money to people if they weren’t making a profit from it, and I definitely do not think this is in the best interest of their customers.
When I spoke with the representative at Liberty Tax, I asked her what the terms of the loan are. She informed me that they don’t directly offer the loan or qualify people for it – it’s done through Republic Bank & Trust. That means the terms will vary depending on the specific circumstances of the customer. I have to believe that people who are trying to qualify for this type of loan don’t have the best credit scores, so I’m sure the interest rates are high. (Based on some of the research I’ve done, it’s possible to see rates up to 500%!) Every person who qualifies can receive a loan of up to $1,500, and the amount is paid back when their tax return refund comes in.
The only positive note I could find in the whole thing is that you can’t qualify until after your taxes are calculated. At least theoretically, the customer would know how much their refund will be before they decide whether to apply for a loan.
I specifically asked the representative if they recommended these types of loans. She didn’t really answer that question, but simply said she would do what the customer wanted.
Debt is bad. Debt based on the anticipation of having a lot of money come in “soon” is really bad. It’s so tempting, though, to take the easy way out.
Here’s two reasons this is a bad idea:
You’re choosing to have a small amount of money right now instead of a larger amount of money later.
We’re a society that wants instant gratification. We don’t want to wait for anything. Some of it is because we’re greedy: We want our money – and the stuff we can buy with our money – RIGHT NOW. Some of it is because we’re scared: Maybe we are afraid there’s a bill we can’t pay, and this seems like the best – or easiest – way to pay it. But if you wait, you can do more with your money later than you’ll be able to do with it right now. In order to receive this type of loan, here are some examples of the fees and charges you’ll be expected to pay (rough numbers):
Tax preparation fee: Around $200 (according to About.com)
eFiling fee: Usually around $25 (according to TuboTax)
Loan origination fee: Usually around $32 (according to Wikipedia)
Interest (assuming a rate of 20%): $50 (20% is a very generous estimate according to CRL)
So you’re spending $307 to receive your money a couple of weeks early. Is it worth it?
Let me say that again: it’s YOUR MONEY, but you’re paying someone else to give it to you. That does not make sense on any level.
When you go into debt, though, you are giving away control of your finances and part of your life.
When you borrow the money initially, it is subject to someone else’s terms – they decide how much money they will give you, when they will give it to you, how much interest you have to pay back. When your refund finally does come in, it’s not yours to do with what you want. You have to give it back to the people you borrowed it from in the first place. Even the Bible tells us, “The borrower is slave to the lender.”
Here’s an important “grown up financial lesson” to learn: Even when it feels harder in some ways, being in control of your own life and finances brings more freedom and security than handing it over to someone else.
So what would you say to someone who was considering getting one of these loans? Is there anything you could say that would change the mind of someone who had already decided to get one of these loans?