Industry Tips
Refund Anticipation Loans
Some tax preparers offer Refund Anticipation Loans (RAL’s) to allow people to receive their tax refunds immediately.
However, the Better Business Bureau of Greater Houston and South Texas (BBB) is reminding people that RAL’s are not an actual refund from the IRS, but rather a short-term loan from the company. According to the Consumer Federation of America, the interest rate and administration fees on R.A.L.’s can translate to an annual percentage rate of 149 percent for a 10-day term.
The R.A.L. is an estimation made by the tax preparer of your refund amount, not a statement from the government. As a result, your refund could actually be less than the amount of your loan. This means you may end up owing the tax preparer more money than you received in 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. However, a better option than taking a R.A.L. is to work with debt collectors and let them know your tax refund is on the way. Losing a portion of that money to a short-term loan only puts you further behind.
Low-income taxpayers have a number of options for free tax preparation, including Volunteer Income Tax Assistance (VITA) (1-800-906-9887 or www.irs.gov) and AARP Tax-Aide sites (https://locator.aarp.org/vmis/sites/tax_aide_locator.jsp).
Many VITA sites also offer services to help open a bank account or get a low-cost prepaid card, which enables taxpayers to get fast refunds without paying a fee. Free tax preparation may also be available on military bases, and since service members are required to have bank accounts, they are able to benefit from the speed of electronic delivery of their tax refunds
Other options available to consumers are Free File – which offers free tax preparation for people whose income is $57,000 or less – and E-file, both of which allow individuals to file their taxes electronically and have their refunds direct deposited. Visit www.irs.gov/efile for more information. While this entire process usually takes 10-14 days, people who take advantage of these services will receive 100 percent of their money and not have another loan to pay off.
The National Consumer Law Center reports this is the last tax season any banks will be offering RAL’s. However, It’s possible that some smaller payday lenders, which until recently haven’t had much federal oversight, may continue to offer some version of the loans.