When filing your taxes you may be offered a Refund Anticipation Loan which allows you to receive your ‘tax refund’ immediately. However, Refund Anticipation Loans or RALs are not actual refunds from the IRS. They are short-term loans from the company who is preparing your taxes.
According to the Consumer Federation of America, the interest rate and administration fees on RALs can range from 40% to over 700% of your refund. In 2009 Americans spent $664 million on RALs and other fees for money that would otherwise arrive in two weeks.
“You should understand what you’re getting into before signing,” said Janna Kiehl, BBB CEO, “Refund Anticipation Loans provide immediate access to cash in the form of a loan, but ask if they are really worth it.” Consider the money you will have to spend just to borrow your own money for two weeks.”
Here’s how RALs work: The loan offered to you is an estimate by the tax preparer of how much your refund will be. It is not a statement from the government (IRS). Your refund could be less than the amount of your loan. Result? You end up owing the tax preparer more money than the amount of your refund.
Some people believe they can’t wait the two weeks for their refund because of debts and bills that need to be paid. Instead of taking an RAL, try working with debt collectors and let them know a refund is on the way. Losing a portion of the money to a loan only puts you further behind.
A better option: Consider filing your taxes electronically and requesting to have your money direct deposited. Visit irs.gov/efile for information on how to file your taxes electronically. You will receive 100 percent of your money and not have another loan to pay off as you would with a RAL. The online filing process will take about 14 days or less.
For additional information you can trust or to find a trustworthy tax preparer, start with bbb.org.