Refund anticipation loans (RAL) are a fast way -- but not a great way -- to get your tax refund. A RAL is an interest-bearing short-term loan provided most often by a tax preparation company. It's based on the taxpayer's expected refund and subject to fees set by the lender. Some taxpayers choose the loans because they can receive their money in a few days rather than weeks. Plus, several larger tax preparation companies offer the convenience of getting your refund on a debit card. What could be better?
But oh, the price of impatience! You might find yourself paying tax preparation fees, account fees and finance charges on your loan. There might also be fees associated with the debit card, such as charges for ATM withdrawals and balance inquiries. One major company disclosed an annual percentage rate of 264 percent on the refund anticipation loans they offer [source: Bell].
The IRS mandates that taxpayers be advised that a RAL is actually an interest-bearing loan that must be repaid. Providers have to disclose all costs and fees associated with these loans. And to lessen the ease of offering these RALs, the IRS is no longing providing tax preparers with the debt indicator that lets them know if the taxpayer's refund might be lessened for outstanding debts [source: IRS].
All in all, if you want to enjoy your full tax refund, it's better to file electronically and have the money directly deposited into your bank account. You'll have your money almost as fast as with a refund anticipation loan, but without all those fees and interest.