A refund anticipation loan (RAL) is a loan borrowed against the amount of your anticipated income tax refund and often includes extremely high interest rates and fees.
Tax return preparers sometimes advertise what they refer to as "Rapid Refund," "Fast Cash Refund," "Express Money" or "Instant Refund." These very tempting offers get you your anticipated refund immediately or within a day or two. What many people don't realize is that there is a high price to pay and that what is being offered is actually a high-cost loan.
If you don't receive your refund or if it is smaller than anticipated, you will have to repay the full loan.
One of the most controversial aspects of RALs is the fact that they are often targeted to low-income workers who qualify for the Earned Income Tax Credit, a federal and, in many cases, state-supported tax policy to support low-income working families.
Don't Pay To Borrow Your Own Money
Your tax refund is money that you worked hard to earn. Don't give it away. Most taxpayers don't realize that they can have their refund in two weeks or less — even without receiving a costly RAL. To avoid the temptation of getting an RAL and to save money at tax time:
- If you have an urgent bill to pay, ask creditors for more time until the tax refund check comes from the Internal Revenue Service. Don't take on a new expensive debt to pay an old bill.
- File your tax return electronically and have your refund deposited directly into your bank account. This will speed up your refund. Some refunds will be deposited in as few as 10 days.
- For free tax preparation, low- to moderate-income tax payers can take part in the Volunteer Income Tax Assistance program, which is coordinated by the IRS. VITA sites can be found in libraries, community centers, local governmental offices, nonprofit organizations and other locations during tax season. Most locations offer free electronic filing to expedite the receipt of tax refunds. To locate the nearest VITA site, call 800-829-1040.
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