October is on us now, meaning the end-of-the-year holiday season is approaching soon. (You’ve probably already seen Christmas products in retail stores, before you’ve even bought that pumpkin for Halloween.) That means you’re most likely thinking about getting that special someone or your kids a few gifts, gifts that might put a hole in your pockets. In the currently struggling economy, you know about the dangers of having too much debt. If you read the article about charge-offs, you know some things with candy-coated names are not as sweet as they seem. The holiday loan is another one of these items.
Holiday loans are available in the month of December, and they are sold by tax preparation companies. Most notably, the big names H&R Block and Jackson Hewitt will tempt you with these loans. How exactly do they do it? Well, when anyone prepares your tax information, he/she figures out the amount you’ll get back as a refund. These national preparation companies will offer this amount, or somewhere in the ballpark, as a personal loan so you can get those holidays gifts you’re eying. (H&R Block calls its holiday loan an “Instant Money Advance Loan”, while Jackson Hewitt offers its loan under a program called the “Holiday Express Loan Program”, or “HELP.”) The loan might be disguised in the form of a prepaid credit card the companies might also offer you, so watch out.
If you don’t have a solid income and you take one of these loans, you might need some extra help once you have to pay it back. That’s because, in regards to the interest rate, the holiday loan is exactly like a payday loan. You will pay part of the loan back in mid-January, and you are expected to pay the rest of it back by mid-February. Its monthly interest rate can be around 30%, meaning the APR exceeds 300% if you can’t pay it all back in February.
It’s a nice way to keep you from getting any net tax refund, beginning in April. While a holiday loan is not secured in name, it is in principle. The companies are offering you a loan because they expect you to get money back from the government when they get your tax information. You’re not going to use your tax refund to pay off the holiday loan, since the entire amount is due in February. However, you will be using an amount of money similar to your expected refund. (At least it will be similar if you don’t incur the interest rate with a defaulted payment.) And, if you’re like most people, you will probably be waiting a few weeks after April 15 to finally receive the refund check in the mail. If you’re thinking about getting a holiday loan, you’d better have a steady income if you’re going to be able to pay it back.
He played clarinet for the Marching Tar Heels in 2005 and 2006. He also volunteered for STV, the student-run television station at UNC-Chapel Hill, in the spring of 2010. He shot video, wrote scripts, and acted for “Off the Cuff,” UNC’s longest running sketch comedy show. He has the rare distinction of having lived in a dorm all four years of his undergraduate college career. He was also on Franklin Street on the night of April 4, 2009. His future plans are to pursue a master’s degree in journalism and to one day work for the media as a sports journalist or broadcaster.
Being one of eight children, David realizes finance is an important topic to everyone, regardless of his/her knowledge of the subject. His interests are in personal finance, budgeting, and savings.
In his spare time, David enjoys watching sports and standup comedy, as well as doing crossword puzzles and writing in the first person. He also thoroughly enjoys trivia and, one day, hopes to participate on the game show Jeopardy!, where he will try to break Ken Jennings’ 74-game win streak.