INCOME tax season brings with it promises of easy and quick access to money. We have often heard some tax preparers, even the big chains, offering Refund Anticipation Loans (RALs). With a RAL, the preparer promises you get your refund money within 2 days.
RALs are private loans to taxpayers provided by financial institutions. The loan is provided in lieu of the agreement between the financial firm and the tax preparer.
It may sound like a real great deal but it’s just another means of ripping you off your money. Refund loans are tempting if you’re in desperate need of cash but consumer advocates warn people to avoid the high-cost loans.
Times may be daunting but consumers should be skeptical about anything that offers easy access to money because they often come with steep costs- costs which are easily unknown or unrecognized by the average consumer.
“Everybody deserves every penny of their tax refund, and giving it away to a third party so that you can have the money a few days faster just makes no sense,” said Linda Sherry of Consumer Action. “That doesn’t stop the lenders from making these loans; it makes a lot of financial sense for them to do it, but it’s never a good deal for the consumer.”
I, personally, am not an advocate of refund loans. They target unsuspecting taxpayers who least can afford to pay the fees when a normal direct deposit refund from the IRS, free of fees and charges, would be available to the taxpayer within 2 weeks from the time a return has been electronically filed.
RALs effortlessly remind me of how payday loans operate, except that they use your tax refund rather than a paycheck as collateral. The difference between a payday loan and a refund loan makes me further repel. The refund loan emanates from someone people trust- their tax preparer.
The tax preparer may enforce a processing fee for a RAL and the lender may impose a fee and/or interest. According to Americans for Fairness in Lending, the average RAL lender fee is $100. The interest rates for a RAL ranges from 40% to 700% depending on the size of the refund. That far outweighs your highest interest earning credit card or any other loan!
But what happens if you owe the IRS money for past taxes due or any other types of liens and you can’t get your refund as originally calculated? You still have to pay back the RAL with the fees and interests for having it processed!
My conservative opinion is not to dive into it unless it could spell the difference between feeding your family or not for a few days. Take one simple step of taking control of your finances- just, at least, once.
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Evangeline can be reached at her marketing location at the Ground Floor of Eagle Rock Plaza (in front of Jollibee), 2700 Colorado Blvd., Los Angeles, CA 90041 or at her business address at 450 N. Brand Blvd., Ste. 600, Glendale, CA 91203, phone number (323) 356-3803 or (323) 254-6787.
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