Refund anticipation loan
Refund anticipation loans, also called as RAL, are basically short term loans that are secured by the expected tax refund of a tax payer. Refund anticipation loans are popular in United States, Canada etc where many people fulfill their requirements through these loans only. Refund anticipation loans have been designed specifically for offering customers quick access to funds rather than waiting for their refund. However, many experts feel that a person should avoid these loans altogether for certain reasons, which would be discussed later on.
Refund anticipation loans are applied by means of a tax preparation service. There is a fee charged by the preparer. It should be noted here that as per IRS or Internal Revenue Service rules, fee cannot be based upon the amount of expected refund. Fee is charged for origination of bank product. This fee has to be same on the loan as well as one the non-loan products offered by bank. Millions of taxpayers go for refund anticipation loans every year. Due to tax refund process becoming fast, getting RAL has become less attractive. Through e-filing and IRS partnerships, taxpayers can expect to get their refunds within 3 weeks. If tax payers choose to receive the funds through direct deposit, time period taken varies from 10 to 14 days. When refund anticipation loans were created, processing paper tax return was a lengthy task and thus, tax refunds used to take many days. In such times, RAL become an attractive option for service provider as well as tax payers.
Refund anticipation loans are known by many other names also. For example, many people call these loans by express money, fast cash refunds, instant refund loans, paystub loans etc. Fee attached with above loans are quite high. Most of businesses that are engaged in the preparation and filing of tax returns of individuals offer refund anticipation loans in United States. Thus, a person can get these loans from further store, tax preparation service or even from a car dealership. There are also some payday lenders and check cashers offering these loans in U.S. Most of people that go for these loans are poor ones belonging to working families. These people generally receive Earned Income Tax Credit.
Fee charged for refund anticipation loans differ from one source to another. Generally, a fee of $75 is charged as RAL loan fee. Apart from this, borrower is also required to pay an electronic filing or administrative fee of $75. Tax preparation fee generally charged is $100. Thus, an overall fee of $250 is charged to borrower for providing refund anticipation loan. If seen with respect to APR, this fee can run up to 521%. Refund anticipation loans are most offered during tax season which runs from January to April.
Some important aspects
There are some important aspects regarding refund anticipation loans that must be understood. First of all, with e-filing and direct deposit request, a person can avoid these loans altogether and can save hefty fee charged by lenders. By opening a bank savings of checking account, a person can easily get the refund deposited electronically in his account and funds can be used immediately for fulfilling needs. There are many credit unions and banks in United States that set up accounts free of cost. Though check cashing stores can also be used for getting refund, a person has to pay additional fee for cashing the check which is generally $50. Also, there are some tax preparation sites which are generally called as TCE or VITA and prepare return for a taxpayer free of cost.
If a person still wishes to get refund anticipation loan, there are some requirements that have to be fulfilled by the creditor. First of all, it has to disclose in writing the fees or charges for the electronic filing of tax returns. It has to disclose the total amount in dollars and the estimated APR of the loan. If tax refund is not made or if amount received is lower than the amount anticipated, borrower has to repay the loan amount and fees. Lender is required to disclose in writing the length of time when the loan proceeds would be made available to the borrower. It should be understood that even without getting refund anticipation loan, tax return of a person can be filed.
Tight money situations have dragged people towards refund anticipation loans in a great manner and this is the reason why these loans are still being obtained in good numbers. In the year 2007, about 8.7 million people in United States obtained refund anticipation loans for fulfilling their requirements and paid exorbitant surcharges and fees. In most of cases, tax preparer acts as an intermediary between the borrower and the bank offering loan amount. Funds are transferred back to bank when refund is processed. Going for above loans is like getting an overnight delivery and paying more for the same. As said above also, main victims of refund anticipation loans have been the low income or poor people and those people who do not have any bank accounts. Tax refund is perhaps the largest chunk of money for people belonging to low and middle income classes and during tax season, these people go for these loans quite often.
Refund anticipation loans are bad deal for any consumer and are probably the worst thing that can happen to taxes. Even in some cases, inflated loans are offered by the tax preparation services through their affiliations with third part bank. Since loan amount is secured against the tax return filed by the tax preparation services, refund is deposited automatically in the account of lending bank for the repayment of RAL taken. In some cases, RAL are not offered faster than direct deposit. There are some tax preparation companies that do not guarantee receiving of money within a time frame.
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