As the holidays near, the offerings of holiday loans can be heard far and wide, from city to town. But what exactly are these companies offering, and why are H&R Block and Jackson Hewitt getting in on the business as well?
What began as a payday loan, in which employees would take an advance on their paycheck to pay for holiday gifts and other expenses associated with end of the year celebrations has turned into a tax advance season as well.
Now H&R Block and Jackson Hewitt are offering a form of “holiday loan” with their variation of a tax refund application loan, or RAL.
This type of loan allows taxpayers to use their estimated tax returns as collateral, collecting the money early, and paying it back by March.
But many who apply for these types of loans are low-income workers that know little about the process, and end up using another RAL come tax time to pay off the initial RAL.
This creates huge problems for already struggling individuals and families, and with estimated annual interest rates on RALs ranging from 40 to more than 700% percent, it can prove detrimental for many.
H&R Block offers their “holiday loan” product under the name of “Instant Money Advance Loan”, and Jackson Hewitt offers a product called ‘Holiday Express Loan Program” or “H.E.L.P.”
Industry watchdogs are labeling these “holiday loans” predatory because of the exorbitant interest rates and the nature of the loan. And consumers should try their best to stay away from these and other similar programs.
Also watch out for other lenders such as Quicken, who have recommended refinancing your mortgage to get cash for the holidays and avoid high interest credit cards. This should never be the sole reason to refinance your mortgage.