RALs have been stopped by regulation, but their replacements are just as bad an idea
During the 2009 tax filing season 7.2 million taxpayers received a Refund Anticipation Loan (RAL) which essentially gave them an advance on their tax refund.
Since then, however, federal government regulations have cracked down on RALs so that they are no longer readily available – and with good reason. RALs were taking advantage of ordinary taxpayers with their high fees and interest rates.
Despite the regulation there are a new range of similar products that take advantage of taxpayers just as much. A report by the National Consumer Law Center (NCLC) and Consumer Federation of America warns against
products such as loans offered by Liberty Tax Service, with loans in at least one of the 26 states where they are carried reportedly carrying a $49.90 fee plus an undisclosed amount of interest. An interest rate of 36 percent would cost a borrower about $80 for a 15-day loan of $2,000. Jackson Hewitt, meanwhile, offers tax-time credit ranging from $200 to $1000 at a 35 percent interest rate, a $6.25 monthly fee, and a fee 3 percent or $10 every time the credit line is tapped.
Even though these new products aren’t technically RALs, they are still best avoided. They do little more than rob taxpayers of their hard-earned money.
Here’s why RALs and these other gimmicks are a bad idea best avoided.
- Time – A RAL is a short-term loan that only gets you money a few weeks earlier than you would have it anyway.
- Money – The huge interest rates ranging from 50-500% APR make RALs a bad idea. Pile onto that the fees they charge and you could easily be out several hundred dollars.
The best thing to do is just to file normally. With e-file, most taxpayers don’t have to wait very long to get their refunds. The IRS usually manages to get most people their money in 8-21 days, although it’s been known to take longer.
Plus it’s a lot less expensive. Many tax preparation service including RapidTax offer several ways to make your tax preparation a little easier on the wallet.
On RapidTax, for example, taxpayers with simple tax situations will qualify for a FREE return which includes
- Unlimited email and live support
- Unlimited W-2 forms
- Interest and unemployment income
- Free electronic filing
And even if your return doesn’t qualify for free preparation, you can still pay by fee from refund. This will deduct the cost of tax preparation from your refund so that you don’t need to pay anything up front.
Don’t be one of those suckers who gets tricked out of their hard-earned money. File with RapidTax and keep what you earned.
Photo via g4ll4is on Flickr.