refund anticipation loan

Why getting a tax refund anticipation loan is a bad idea

UFSTSG Filing your taxes

Getting a tax refund is always exciting! Although technically the money paid out in the form of a tax return is money that was withheld from your paychecks throughout the year, many people tend to think of it as “extra” money and use it for special purchases like a vacation or a new TV.

Sometimes, though, this money might be needed to help pay bills or pay off debt. In some cases, people are so eager to get their refund that they take out a tax refund anticipation loan so they can get their money sooner. But these loans can be a bad idea for consumers. Read this before you consider getting one!

What is a tax refund anticipation loan?

A refund anticipation loan (RAL) is often offered by tax preparation companies when they file your taxes for you. The amount they offer is based on the anticipated tax refund you’ll get.

There is typically no credit check involved, and approval happens within a couple of days. The upside of this is that you don’t have to wait for your refund to arrive in the mail or be deposited into your bank account. You’ll have access to your refund sooner, which is especially enticing if you need the money to pay bills.

The dangers of refund anticipation loans

So what’s the downside? Mainly, fees and interest rates. These anticipation loans work much like payday loans. That means they typically come with very high service fees and interest rates. RALs are considered short-term financing, which means they don’t have to adhere to regulations that govern conventional loans. Lenders can exploit this, often charging interest rates as high as 200%. That means you could end up spending hundreds of dollars in interest just for the convenience of getting your refund a couple of weeks early.

If you’re not careful, and you end up spending your refund on other things when it does arrive, then the interest on your RAL will really hurt you. And if there is any delay in getting your refund — say something on your tax return requires further investigation by the IRS, the interest will continue to pile up even more.

The time saved isn’t worth it

The idea of having your money in hand within a couple of days is definitely tempting. However, you’re much better off waiting for a traditional refund from the IRS.

If you file your taxes electronically, it’s possible that you’ll receive a check in the mail in as little as two weeks. And if you request your refund as a direct deposit into your bank account, you can get your refund even more quickly. This means the time you save with an anticipation loan isn’t really worth it.

The lender may not be licensed

Refund anticipation loan programs are often offered by tax preparation services in an attempt to get your business. But did you know that less than 41% of all tax preparers are actually licensed professionals? You should never choose a tax preparer on the basis of receiving a loan.

At VTax, our tax professionals are 100% trained and licensed, and are dedicated to getting you the biggest tax return possible. We guarantee that you will receive the maximum refund you are entitled to, or we will refund your preparation fees. Get top-notch, expert tax preparation with VTax — no hidden fees or strings attached! Request your free quote today!