Posted by Accountable Solutions

Breaking Down the Refund Anticipation Loan

Breaking Down the Refund Anticipation Loan

RAL or a Refund Anticipation Loan is recommended by most of the companies that offer tax preparation services against their income tax return. In just minutes the tax refund anticipation loan can be approved and the money can be claimed within a day or two. The basis for these loans is the full amount of the tax refund. You can have the anticipated refund in the amount partially or in full. The loan is fully paid with interest once the check is available at the office of the tax preparer company and any outstanding balance is released to the recipient.

Though this loan has high-interest rates, a lot of people avail of this program for easy access to money.

While in these loans the credit checks are impossible to receive in a conventional way, the loan must be requested by the loan preparers from the IRS to check if liens against refund are existing. Liens can be used to replace the back child support, past-due student loans and the refund for back taxes. RAL can only be given for the refund balance or be denied if a lien is against the refund.

RAL as a Non-Consumer Friendly Program

People should try to avoid the RAL program. The interest rated attached to these loans and the service fees are very high. These loans are not regulated under laws for interest charges since these loans are short-term financing and are not a conventional loan. The interest rate of RAL may soar to over 200 APR much like a payday loan. For instance, when your loan for a few thousand dollars, it may cost you a couple of hundreds of dollars in refund anticipation loan in 5 days.

Tax Refund Anticipation Loan Advantages and Disadvantages

A person can get easy and fast money based on the anticipated tax refund with RAL. Since taxpayers usually receive refunds within a few weeks from the government, except for taxpayers needing immediate funds, getting a loan commonly makes little financial sense anyway.

One major disadvantage of a refund anticipation loan is it's being a very expensive form of borrowing money since it provides a short-term benefit. The interest charged by the moneylender may seem small, mostly around 3-5% of the refund amount but, there are additional fees and charges that are factored in that makes the total cost much higher.

Lastly, many people may want to view the tax refund as a nice bonus during tax time or forced savings in another way. That is to say, during the past year they have been providing a loan to the government more money, tax-free, the bigger their refund is.

So that enough money will be withheld by their employers from their paychecks to include their expected tax obligations for the year, adjusting the state and federal tax withholding may be considered by the taxpayers as an alternative to discourage producing a large refund. With this, those who want to save their extra income can do so for future use and the need for a tax refund anticipation loan will be eliminated.

Better Tax Refund Alternatives

You can have a refund for as early as two weeks when you file your taxes electronically. The money can automatically be deposited to you in a shorter period if you have a bank account. Then you will no longer need to avail of these loans. Looking for another financial option can be considered by consumers who desire to receive money sooner than two weeks to prevent them from having high-interest rates. 

Acquiring a prepaid debit card can be considered for those who do not have a bank account. Prepaid debit cards can also act as a bank account. It can also receive deposits electronically. It will help you receive your refund faster if the card you applied has routing numbers available. Online banking is very useful to those who had credit issues in the past. You can immediately get the money once it is sent to your card.

News on Refund Loans From The IRS

It has been issued by the IRS that refund processing companies will no longer be provided with consumer information. The tax liens information is important in the provision of refund anticipation loans. It is stated by the IRS as well that providing consumer information to refund processing companies infringe on the taxpayer’s privacy.

It is also explained by the IRS that the need for these types of loans will be eliminated through the onset of preparing free through their website, filing electronically and the quick processing of these refunds.

The fees on these types of loans that consumers spent are almost 750 million dollars in 2009. This is a huge amount considering that the loan being processed is only 8 million dollars. An average of 950 dollars per person that covers fees for every loan that usually lasts for about a week or two.

Jackson Hewitt and H&R Block are the largest loan providers. These loan providers are furious since they believe that these types of services when terminated is very inconvenient to taxpayers who need quick access to refunds. As of the moment, there are no signs if the moneylenders will learn another way to endorse this type of service in the forthcoming tax seasons.

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