The Truth About Refund Anticipation Loans

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It’s that time again – TAX SEASON! What tipped me off? Certainly, it could have been the Statue of Liberty standing at the corner flailing her arms around, encouraging me to pull on in to get my taxes done.  Or perhaps it was the 7,000 commercials peppering my television screen. But, honestly, guys, it was anticipation of that fat refund check that got my blood a-pumping. I’m sure many of you are picking up what I’m putting down!

Christmas is over – the visions of sugar plums dancing in my head have been replaced with visions of TVs, basement remodels, a new laptop and other random things that have been on my “want” list for quite some time. With the help of Uncle Sam, I just might be able turn one of my visions into reality (the holdup will be my spreadsheet loving husband).

For other people, you may want to use your tax refund to pay off credit card or medical bills, apply extra to a home or auto loan, or perhaps your tax refund will simply just help you stretch to another month.

Many tax preparation places offer refund anticipation loans (also known as RALs). It means that you’ll receive you tax refund immediately (technically, it’s a loan from the tax preparer), but at a “small” cost to you. In the heat of the moment, this may seem like an amazing opportunity! Just slow down for a minute and think it through. We’re all old enough to know that all that glitters is not gold, and often times these refund anticipation loans tend to be put in that category.

A 2006 study by the Consumer Federation of America found that “based upon the prices for RALs in 2006, a consumer can expect to pay about $100 in order to get a RAL for the average refund of about $2,150 from a commercial tax preparation chain this year.” $100? Seriously?? Just imagine how much someone who received a larger refund would have to pay! Eek!

Examples help me understand these things better, so let’s set the scene: Hilary goes to get her taxes done. She finds out that she is going to be the lucky recipient of a tax refund. Yippee, Hilary! Hilary can choose to either 1) wait up to 3 weeks to receive her money from the government OR 2) walk out of her tax session today with her money by getting a refund anticipation loan, less a percentage of her tax refund and associated fees.  What should Hilary do?

My personal advice to Hilary is to just hold out the 3 weeks (though usually it’s less time if you choose to have the monies direct deposited into your Linn Area account). I don’t know about you, but I can think of A LOT of things that I could do with $100!

So sound off below, what do YOU think Hilary should do? Are refund anticipation loans worth it?