Getting a Refund Anticipation Loan
A tax refund check is a beautiful thing. The IRS says that it issues 90 percent of them within 21 days of receiving a tax return [source: IRS]. But what if you can't wait that long? Aren't there ways to get that fat refund check sooner?
Technically, yes, but you'll pay dearly for it. The first method is called a refund anticipation loan or RAL. Here's how RALs work:
- A tax preparation service, bank, or cash-checking operation gives you a loan for the amount of your tax refund minus their fees.
- When your actual refund check arrives from the IRS, you pay back the loan.
- The lender charges crazy high interest on the loan. In one example, a $1,500 loan carried an interest payment of $61.22, or an APR of 149 percent [source: National Consumer Law Center].
Thankfully there's been a crackdown on RALs, which were marketed mainly to low-income and elderly taxpayers. In their place, some lenders are peddling refund anticipation checks (RACs). These are designed for folks who are getting a refund but don't have a bank account. The lender opens a temporary bank account to deposit the refund and charges steep fees (somewhat less than RALs) to withdraw the cash. Since the money doesn't come to you any faster, the main "benefit" is that the RAC allows the taxpayer to avoid paying the tax prep fees up front [source: NCLC].
Avoid the fat fees by setting up your own bank account to have the check directly deposited there. Then get free help with your taxes from the Volunteer Income Tax Assistance program.