Tax Refund Anticipation Loans

In the long run, is it worth the price you would pay to get your tax refund a few days or weeks earlier?  According to a 2005 study by the National Consumer Law Center, income tax preparers and lenders who make “tax refund anticipation loans,” or RALs, take in about $1.57 billion in fees each year out of the earned-income tax credits alone that are owed to working parents.

Overall in 2006, nearly 9 million people took advantage of these short-term cash advances against anticipated income tax refunds.  RALs come with very high annual interest rates, ranging from about 36 percent to over 500 percent, and tend to prey on the very people who can least afford it.  The Internal Revenue Service (IRS) even makes it less risky for lenders to make such loans by alerting them to any claims against an applicant’s refund, such as child support or an unpaid federal student loan. 

Why pay to borrow your own money, when you can avoid exorbitant interest charges and have your refund deposited directly into your banking account in a short amount of time by filing electronically, at no cost or relatively little cost?  In fact, you can go directly to the IRS web site and see whether you are one of the millions of Americans eligible to file your federal income tax return free, through a partnership with commercial tax software companies who provide online tax preparation and electronic filing services.