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Stay Away From Tax Refund Loans

MIAMI (CBS4) - As tax season gets into full swing, many Americans have already filed their 2010 return and are anxiously awaiting their refund.

Of those awaiting cash back from Uncle Sam, about 10% taxpayers want their money back as soon as possible and accept so-called refund anticipation loans from the tax preparers. Anticipation loans are a huge and profitable business for banks and tax preparation firms, but are not the best bet for smart taxpayers.

In 2009, more than 7 million taxpayers took out refund loans at a cost of $664 million in fees and extra charges. The loans cost, on average, anywhere from $30 to more than $100 dollars and carry interest rates as high as 700%, according to the Consumer Federation of America.

"They're a terrible deal and cost way too much for people to have to pay to get their own money back, it's a horrible deal," said Coral Gables Financial Planner Charles Sachs of Evensky and Katz.

Following years of consumer complaints, the federal government has just started cracking down on the banks that write the tax loans. As a result, several major lenders across the country are not offering them anymore.

"It's almost like preying on the people who can least afford it, who cannot afford all the fees. It's much better to file early and wait the 2 weeks for your check to arrive without paying the extra $50-$200," said Sachs.

For years the IRS has advised taxpayers who want their refunds back as soon as possible to file early using electronic E-File programs and have their refunds deposited directly into their bank accounts. The IRS says it can process refunds in 8-10 days and there's no extra charge for them to deposit the money directly into a bank account.

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