The concept of a Refund Anticipation Loan (RAL) revolves around allowing taxpayers to borrow money based on their projected income tax refund. While banks are the primary lenders for these loans, tax preparers and occasionally CPAs extend this financial service to their clients during tax return preparation.
Often referred to as an immediate or rapid tax refund, these loans may give the impression that they originate from the State or the Internal Revenue Service. Nonetheless, they are actually short-term loans that come with steep expenses. In many cases, the tax preparer and the lending institution receive commissions based on the calculated tax refund. As a result, the refund anticipation loan (RAL) is typically lower than the actual amount of the tax return refund.
In compliance with the regulations set forth by the CBA, Certified Public Accountants (CPAs) who provide Refund Anticipation Loans (RALs) are obligated to provide consumers with written disclosures. These disclosures must include the exact monetary compensation the CPA will receive for facilitating the loan. It is mandatory for these disclosures to be made prior to or during the referral process to the lender, as well as any other activities undertaken by the CPA to aid in the loan process.
When seeking assistance from a CPA for tax preparation and contemplating an RAL, it is advisable to collaborate closely with a tax professional. Please consult with a PriorTax dedicated Tax Professional about the process of filing for an RAL for free and the estimated time it takes for the State and the IRS to process and issue your complete income tax refund.
RAL is Paying to Borrow Money.
Non-bank lenders offer Refund Anticipation Loan (RALs), which are brief loans lasting between 7 to 14 days. These loans are backed by the borrower’s estimated tax refund. After deducting applicable fees, individuals who opt for RALs receive immediate cash equal to their expected tax refund.
Instead of taking an identical approach, individuals willingly accept a deal where they commit to paying an interest rate that, if calculated as an annual percentage rate (APR), could reach three digits. Typically, a financial institution establishes an exclusive account designated for the purpose of receiving the taxpayer’s refund from the Internal Revenue Service (IRS). Upon receipt of the refund, it is utilized for repaying the borrowed funds.
Hidden Risks by Getting Refund Anticipation Loan (RAL).
RALs, similar to other forms of loans, carry inherent risks that should be carefully considered. These risks include the possibility of facing a greater financial burden if your refund request is rejected, delayed, or falls short of your expectations. While RALs may seem manageable in the immediate future, their long-term implications can be financially crippling if unforeseen circumstances arise with your refund. Over time, this can result in accumulating significant debt that has a detrimental impact on your credit rating.
RAL (Refund Anticipation Loans) Wont Be Cheap
When acquiring an RAL, it is essential to be aware of its various associated fees. These fees typically encompass a loan application fee that can reach up to $100, a tax-preparation fee averaging around $40, a check-processing fee of approximately $20, a “peace of mind” guarantee provided by your tax preparer ensuring the refund specified on your tax form (often amounting to $100 or higher)
The fees associated with RALs can quickly add up, putting a dent in your wallet. When considering RALs, it is important to note that they often come with exorbitant interest rates. These rates usually begin at 36 percent or higher.
Refund Anticipation Loan (RAL) applications are available from various venues.
When consumers look for “instant refunds,” they often turn to businesses specializing in tax preparation and filing. However, it’s important to note that RALs, or refund anticipation loans, can also be found in various other establishments such as car dealerships, boat showrooms, and furniture and electronics stores.
Variations in RAL Filing
Instead of relying on costly RALs, it is wise to explore more affordable options available. You can save considerably by exercising patience and opting for the IRS to send your tax refund without any charges. When you e-file your tax return and choose direct deposit for your refund, you can experience a speedy IRS refund cycle that can be as short as 8 days.
By taking a short pause of just a few days or weeks, you have the opportunity to pocket hundreds of dollars in savings. If you still need to take advantage of it, think about initiating the process of setting up a checking or savings account. This will allow you to receive your advanced tax refund effortlessly through direct deposit.
