Just say no to Refund Anticipation Loans

Back in the days when electronic filing didn't exist, there was a good market for Refund Anticipation Loans (RALs). It took several weeks (or maybe even months) to get your tax refund, depending on when you filed your taxes. The RALs were offered by tax preparers who would do your taxes, figure out your refund, and offer to give you money right then and there. In exchange for a fee, of course. The taxpayer could access the refund right away via this type of loan, and the tax preparer got paid back when the refund was actually issued.

Since electronic filing is so widespread, there is no longer a need for Refund Anticipation Loans, although they're still being offered and heavily marketed. In most cases, you'll get your refund in less than two weeks if you file electronically. Depending on which day of the week you file, you might even get your refund in a week or less. And electronic filing is usually free!

RALs are so ill-advised because they're expensive. The fee for one of these loans is typically $50 to several hundred dollars. That's a big chunk out of your refund. In 2007, well over 8 million taxpayers used RALs and paid almost $900 million in fees for the privilege of doing so.
If RALs are such a bad deal for consumers, why do so many use them? Most likely because they're not aware that they could get their refund very quickly simply by electronically filing their tax returns. This product targets the low-income and ill-informed, who often feel a need to get their hands on quick cash at any cost. And those selling the RALs aren't likely to volunteer the truth about electronic filing and talk themselves right out of additional fee income.

Spread the word: Refund Anticipation Loans are a waste of money and almost completely unnecessary these days.

Forensic accountant Tracy Coenen investigates corporate fraud and consumer scams, and is the author of Expert Fraud Investigation and Essentials of Corporate Fraud.
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