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Refund anticipation loan options
Rapid refunds are expensive; there are better choices
The popular and highly advertised refund anticipation loans (RAL) are expensive ways to borrow your own money. There are other, better choices. One of them actually increases your refund!
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Refund anticipation loans have better, less expensive choices
The tax season is upon us and as always, most people are due refunds. Refunds are perceived as a good thing, but really, all a refund means is that you paid too much in taxes last year. Worse, it means that you lent the government money for a year at no interest. Still, a refund is always preferable to having to pay, and anyone receiving a refund is happy with it. In fact, most people have plans for spending that refund long before it arrives.
In order to take advantage of that, many tax preparers, such as H&R Block, offer something called a Refund Anticipation Loan. The RAL, also known as a “rapid refund” is a product where the tax preparer allows you, for a fee, to have your refund within 24 hours or so. The fee tends to be steep, and it really represents a fee charged for you to borrow your own money. After all, if you wait a few days, you’ll have it in your mailbox or bank account. But few people want to wait, especially if they have filed the traditional way by mailing in paperwork.
The fees charged for such rapid refunds are high, and can easily represent an annual interest rate on the loan of 200% or more, an interest rate comparable to those of payday loans. There is a better way.
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In years past, sending in a return and waiting for a refund could take 6-8 weeks. The return had to get there, and someone at the Internal Revenue Service had to go over the paperwork. If a refund was due, a check had to be prepared and mailed to you. This took a long time and this wait, and the public’s hatred of it, is what spurred the creation of the rapid refund. But today, the process is much faster. Most returns are now filed electronically and most refunds are now made through a direct deposit to the taxpayer’s bank account. Many taxpayers can file and have their refunds within ten days, and obtaining one so quickly pretty much makes buying a rapid refund unnecessary.
An even better option for do it yourself types would be to use Turbotax. This computer program can calculate your taxes for you and the cost of the program is tax deductible. Better yet, if you are owed a refund, you have the option of taking a portion of your refund in the form of gift cards from popular retailers, such as Amazon or Starbucks. Here’s the best part - if you do, you will receive a gift card valued at 10% more than the amount you pay for it. You can receive a $100 gift card, for example, in exchange for $90 of your refund. At a time when most tax preparers are trying to take some of your refund from you, this is a rare opportunity to get more than you are owed! It represents a particularly good value if you regularly shop with those retailers, as you were probably going to spend money there anyway.
For the impatient, the refund anticipation loan is always available. But a quick electronic filing, either by a professional preparer or by yourself, using Turbotax, can offer a much better value for your time and money.
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