Refund Anticipation Loans

The “Tax Refund” That Really Isn’t One: It’s a Refund Anticipation Loan

How would you like to pay a super-high price to borrow money that already belongs to you? Sounds ridiculous, right? But that’s pretty much what happens to many folks at tax time in the crazy world of RALs, or refund anticipation loans.

You may be tempted by tax-time advertisements for “Fast Cash Refunds,” “Express Money,” or “Instant Refunds.” These ads will offer to get you your refund in just a day or two, or even on the spot. Beware! Many of these “fast refunds” are really LOANS, refund anticipation loans.

When you get a RAL, you’re borrowing against your own tax refund money. And RALs are often marketed to people who need money the most — low- and moderate- income workers who receive the Earned Income Tax Credit.

Don’t Pay Triple-Digit Interest Rates to Borrow Your Own Refund

RALs are extremely expensive. Loan fees typically range from $30 to $90, which translates into Annual Percentage Rates (APRs) of about 60% to over 700%. If you paid those rates on all your borrowing you’d probably go broke! And all to get your tax refund just a few days earlier than you can for free from the IRS. You’re lining someone else’s pockets with YOUR hard-earned money!

RAL fees, combined with tax preparation, electronic filing, and other fees, can end up eating away a big chunk of your refund.

RALs Can Be Hazardous to Your Financial Health

In addition to their high costs, RALs can be risky. Since a RAL is a loan from a bank in partnership with a tax preparer, it must be repaid even if the IRS denies or delays your refund, or your refund is smaller than expected. If you don’t pay back the RAL, the lender will take actions to hurt your credit rating and may send your account to a debt collector. In addition, when you apply for a RAL, you are giving the lender the right to grab your tax refund to pay for old tax loan debts that the lender claims you owe.

Save $ and Avoid RALs – Use a VITA Site.  You can get your refund fast and its free!

A great way to save money at tax time is to go to a Volunteer Income Tax Assistance
(VITA) site. VITA sites provide free tax preparation to low- and moderate-income taxpayers.

VITA sites are sponsored by the IRS and can be found in libraries, community centers, and other locations during tax time.

For the nearest VITA site, call the IRS general help line at 1-800-TAX-1040 or go to www.tax-coalition.org.

The material in this article is intended only to offer general information and is not intended as legal advice. It is always best to consult an attorney about your legal rights and responsibilities regarding your particular case.

The foregoing information is provided by the lawyers at Three Rivers Legal Services, Inc., a non-profit corporation that receives funds from various local agencies and individuals, as well as from the federal government through Legal Services Corporation (LSC).  For specific advice on your particular situation, we suggest that you consult with a lawyer of your choosing.  If you cannot afford a lawyer, you may call your local legal services office to find out if you qualify for free, quality legal assistance.

If you live in Alachua, Baker, Bradford, Gilchrist, Levy or Union counties, you may call our Gainesville office at (352) 372-0519.  If you live in Columbia, Dixie, Hamilton, Lafayette, Madison, Suwannee, or Taylor counties, you may call our Lake City office at (386) 752-5960.  If you live in Clay, Duval, Nassau or St. Johns counties, you may call our Jacksonville office at (904) 394-7450.