What is a Refund Anticipation Loan?
A Refund Anticipation Loan (RAL) is a loan given to a consumer based on the anticipation of an upcoming tax refund.
These loans give you money now that you normally receive after the U.S. Internal Revenue Service (IRS) processes your tax return and determines that you are entitled to a refund.
The catch is that these loans sometimes come along with extremely high interest rates and high interest fees. The scrutiny on RALs has been so high in recent years that major tax preparers like H&R Block have stopped offering them, and instead partnered with other lenders to provide this type of loan.
While consumers might think they need a RAL in order to receive their tax refund money as soon as possible, direct deposit through the IRS can put the money in a bank account in as little as two weeks.
If you’re using a tax preparation service or looking to take advantage of a RAL, consider these tips from the Better Business Bureau:
- Check out other IRS filing options that are available without additional fees and find out what the probable waiting period will be for an expected refund check from the government.
- Realize that a RAL is a loan provided by a bank and that it must be repaid, even if the refund is less than expected.
- Evaluate the cost or interest rate involved in the loan.
- Be aware that other businesses employ the tax RAL concept because it attracts buyers. Consumers should evaluate this with the same scrutiny that they would use with any other loan.
- Beware of a preparer that guarantees results or that bases its fees on a percentage of the amount of the refund.
- Choose a preparer that you will be able to contact should any problems arise.
Repaying a Refund Anticipation Loan
RALs must be repaid even if the IRS denies or delays your refund or if your refund is a smaller than expected. When you are receiving a RAL, make sure the following information is included in the agreement supplied by the tax preparer:
- Fees that the preparer charges for tax preparation
- Fees that the prepares charges for facilitating the RAL
- The RAL’s annual percentage rate (APR)
- The RAL’s total cost
- The estimated date on which the you can obtain your RAL money