Refund Anticipation Loans (RAL’s) Introduction At this point in time people who are in need of money would seek ways on how to obtain such needed amount at the shortest possible time. Now, companies would then take this as an opportunity to offer services like short term loans…
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In spite of the high fees associated with RAL’s, most of those coming from the poor families are the ones who usually apply for it. There is an on-going battle between the government, the consumer advocates and tax preparation companies on the continued offering of Refund Anticipation Loans. Part I Refund Anticipation Loans (RAL’s) Defined A refund anticipation loan is a type of short term loan that is applied by a taxpayer, who wants an early claim on his tax refund. The amount that is acquired through the loan will be repaid by the taxpayer’s anticipated tax refund. It may also be called as “Rapid Refund” or “Instant Money.” A contract is provided by the financial institution to be signed by the taxpayer that serves as an assurance that the loan will be paid back through the taxpayer’s tax refund (“Refund Anticipation Loan Fraud”). Common interest rates for RAL’s start from 50% up to over 500%, the basis of which is the length of the time that is needed to process tax forms at the Internal Revenue Services (IRS), that is According to the Center for Responsible Lending. Although this type of loan has been claimed as a way for taxpayers to have their tax refunds earlier in their pockets, more often than not it is advanced only for just a few days or less as compared to the actual date that the IRS releases the tax refund (“Tax Refund Resources for Consumers”). RAL’s give taxpayers the opportunity to get their tax refund at a sooner date and be able to use the money earlier rather than wait for a couple more days. Even so, problems occur when someone opts to use a refund anticipation loan. Basically the lender knows that the money borrowed will be paid no matter what since the guarantee is the taxpayer’s tax refund; therefore, it is considered as a safer type of loan compared to the other types, but then risking everything just to get the money sooner seems to not sound good at all (Pritchard). Refund Anticipation Loans reflect the taxpayer’s income tax return. Those who would want to avail of this can apply in banks or lenders if they can’t wait till the IRS distributes the tax refunds (“Advantages of Refund Anticipation Loan”). Some Advantages of Refund Anticipation Loan Speed It will take just a couple of days for the borrowed money to reach the borrowers’ hands. So for those who will encounter any emergencies and are desperately in need, a refund anticipation loan is an instant solution to their problems, instead of waiting for weeks or months from the government (“Advantages of a Refund Anticipation Loan”). Ease While some people struggle to find companies that will allow them to borrow money due to a bad credit history or the incapacity to pay, with RAL’ s it may not be that difficult. Simply because there is security on the lenders’ part that the borrowed money is repaid through the tax refund, so getting the loan application approved is not at all hard (“Advantages of a Refund Anticipation Loan”). Fees Fees for services rendered are instantly deducted by the tax preparer from the refund. This could be advantageous to those who cannot even afford the fees that professional tax preparation companies charge (Deutch). Disadvantages of Refund Anticipation Loans It may be the solution to some people’s financial problem, but still there are things that have to be considered
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