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Question from a reader:”I think I understand the concept but what is a refund anticipation loan?”

My answer is that they are loans given from a lender, usually at a high interest rate and with fees with the collateral being your anticipated tax refund.  The lender controls the release of the money and you authorize him (with him being a company, generally a commercial bank) to collect your tax refund when it is paid by the Federal government.  State refund anticipation loans are also in the works. Many large tax preparation firms and small ones offer this service.

My thoughts on the matter are that if you can wait it is ALWAYS better to have the money go into your checking or savings account as a direct deposit.  If you are anticipating a refund, you can get it as a direct deposit generally in ten business days barring any money that you owe a government agency that is levied.

Each year, the IRS and state agencies try (or have gone on record as saying that they are trying)  harder to get the money back to you faster.

 

The refund anticipation loans (also known as RALS, etc) carry a high interest rate and fees in relation to the money that you are receiving.  If you absolutely, positively are dying for the cash or need it for an emergency then do what you have to do.  Generally you are paying a high premium for getting your money ten days earlier.  In some cases instant money is offered but the fees get higher still.  For large companies that offer this service it use to be profitable, in the current economic environment it still may be since they can always refuse to advance money to high risk customers. 

If you have waited this long for the money, my suggestion is to save yourself some of your money (because a refund is YOUR money being returned back to YOU) and wait the ten days till you get the money into your account.  If you don’t have a checking account, wait for the check.  Beware of debit cards that have high service charge or transaction fees.  You can have your refund money eaten away there just as quickly if you aren’t careful.

There is some talk that the ability to get refund anticipation loans may be outlawed by Congress in the next few years. Some people feel that the interest rates are too high and it promotes people getting and staying in debt.

Thanks for asking the question! 

   Practical Money Making-Surviving Recession, Layoffs, Credit Problems, Generating Passive Income Streams, Working Full Time or Part Time and Retirement

Kim Isaac Greenblatt

Tags: Business, Kim Isaac Greenblatt, profitable, refund anticipation loan, taxes

This entry was posted on Sunday, November 16th, 2008 at 12:09 am and is filed under Business. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.