Return Anticipation Loans: Not Worth the Worry

Mar 12, 2018
March 12, 2018, 12:11 pm

Many individuals rely heavily on influx of cash from their tax refund and want to access it immediately.

This is where “Return Anticipation Loans” can enter the picture. A RAL is a loan made by a lender, where the value is based on and usually repaid by, one’s anticipated federal income tax refund. RALs are high-risk loans marketed towards low-income filers. For those in dire situations, it may seem worth the risk to take out a RAL. However, the risk outweighs any reward.

Here are some things to consider when thinking about a RAL:

Don’t Pay to Borrow Your Own Money. Taxpayers who take out RALs receive cash, typically right away, in the amount of their anticipated refund, minus fees. In exchange, they agree to pay an interest rate that could, when expressed as an annual percentage rate (APR), add up to a triple-digit rate.

Don’t Take on the Risk Like all loans, RALs come with risk, including an increased debt burden if your refund is denied, delayed or lower than expected. As costly as RALs can be in the short-term, they can be devastatingly expensive over the long-term should anything go wrong with your refund. Significant debt can pile up over time and hurt an individual’s credit score.

Don’t Overpay In addition to the high rates of interest, RALs come with a number of fees, which may include a loan application fee as high as $100; a tax-preparation fee; a check-processing fee; a "peace of mind" guarantee from your tax preparer that you’ll get the refund cited on your tax form ; and a refund account fee for services involved in setting up a temporary account . There are better, less expensive alternatives to RALS. Be patient and wait until the IRS sends the refund free of charge. If an individual does not have a bank account then they should consider opening a checking or savings account, so your refund can be directly deposited.

Most tax filers who e-file their return and choose direct deposit will receive their refund within 21 days of when the IRS accepts their e-file.. Taxpayers who paper file will receive their refund within six to eight weeks after the tax return is received.

If an individual is looking for help with their taxes, there are free tax programs such as The Benefit Bank!

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