“Refund Anticipation Loans (RALS)” and “Refund Anticipation Checks (RACS)”
You may be tempted by tax season advertisements for “fast cash refunds”, “express money” or “instant refunds”. These services promise to cash your refund on the spot, in one-to-two days, or sometimes even in advance of filing your full tax return.
BEWARE! THESE FAST REFUNDS ARE ACTUALLY LOANS.
When you get a refund anticipation loan (RAL) or refund anticipation check (RAC), you’re actually borrowing against your own tax refund money. That’s money that you worked hard for all year. Worse yet, these loans are often marketed to the people who most need the money, those receiving the Earned Income Tax Credit.
RALS are expensive
Loan fees range from $30 to $125, which translates into annual percentage rates between 60% and 700%. Can you imagine paying those types of fees for your credit card or car loan? Of course not!
You can get your money for free
The IRS has reduced their tax return processing time so refunds are getting to taxpayers faster. If you have your tax refund check direct-deposited into your own bank account, it gets to you faster than a check from the tax preparer (RAC) and it’s free! Even if you don’t have a bank account for direct deposit, checks are being mailed quicker.
It’s your tax refund and the IRS will get it to you for free. It takes two weeks or less to get your refund direct-deposited and three to four weeks to get a check by mail directly from the IRS.
RALS can also be risky
A RAL is a loan from a bank that partners with your tax preparer.
It MUST be repaid, even if the IRS delays or denies your refund or if your refund is smaller than what you expected.
If you are unable to pay back the RAL, the lender will take actions to hurt your credit rating and may send your account to a debt collector. Additionally, when you apply for a RAL, you are giving the lender the right to claim your tax refund to pay back old tax loan debts that the lender claims you owe.
Remember, it’s YOUR signature on the return and your money at stake when you file a tax return with the IRS.
If you suspect tax fraud or abuse, report it to the IRS at 1-800-829-0433.