Refund Anticipation Loans: Helpful or Scam?

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Posted on 03/09/2012

For those who expect a tax refund, you may think you can’t get that windfall in your bank account fast enough. That’s why some people turn to Refund Anticipation Loans. It’s a quick, short-term personal loan that uses a person’s IRS tax refund as collateral so that the borrower can get the cash even before Uncle Sam cuts their check. Some say it’s helpful, others say it’s a scam. Here’s a look at both sides.


Reputable Companies Offer This Service Most major tax assistance firms offer RALs as a product option for customers. H&R Block offers what they call Federal Refund Anticipation Checks. They advertise it as a way to get your money quickly and conveniently. They say it’s faster than a mailed federal refund check, which usually takes 18-25 days.


Refund Anticipation Loans Don’t Have a Cap
According Loans.org, other quick cash methods like payday loans have principal caps. That means you can only borrow so much. But RALs don’t have that cap, so borrowers can receive thousands of dollars this way, often at triple-digit interest rates.


RALs Are Not Backed By the Government
Some people mistakenly think that the government is behind RALs. That’s not the truth. Certain lenders use misleading wording to make RALs seem like an alternative method of receiving your tax refund that is endorsed by the Internal Revenue Service.


Don’t Pay for Tax Prep Through RAL
If you don’t have the money to pay a tax preparer, RALs can help. According to H&R Block you pay nothing out of pocket at the time of your tax preparation. The fees are simply deducted from your Refund Anticipation Check funds.


The IRS Doesn’t Like RALs
In fact, the IRS is trying to put an end to RALs. RAL lenders will now be unable to accurately predict how much an individual can expect to receive in their refund. In the past, this information was obtainable through public records.


Rapid Refunds Now Available
If you file your tax refund electronically, try receiving your refund through direct deposit. You should be able to get your money within a few days and it won’t come attached with any interest rates or stipulations like RALs do.


By Alison Storm


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