Refund anticipation loan

A refund anticipation loan (RAL) is a high interest rate short-term loan secured by a taxpayer’s expected tax refund, and designed to offer customers quicker access to funds than waiting for their tax refund.

United States

In the United States, taxpayers often apply for a refund anticipation loan through a paid professional tax preparation service, where a fee is typically charged for the preparation of the tax return. In the United States the Internal Revenue Service rules prohibit basing this fee on the amount of the expected refund. An additional fee is usually charged by the service for originating a bank product. By law this fee must be the same on both loan and non-loan bank products, and in 2004 the average fee was $32.^[1] The bank through which the loan is made charges interest or finance charges.

According to the National Consumer Law Center, 12 million taxpayers used an RAL in 2004.^[2] With e-filing and IRS partnerships that help consumers e-file for free, U.S. taxpayers can receive their tax refunds within three weeks and as quickly as ten to fourteen days if choose to receive their refund via direct-deposit. This has rendered RALs less attractive to some.^[3]

1. ^ "Building a Better Refund Anticipation Check". Consumer Law. http://www.consumerlaw.org/initiatives/refund_anticipation/content/BuildingBetterRAC.pdf. Retrieved on 2008-10-16.
2. ^ "E-filing can make high-fee loans unnecessary - Tax Tactics". MSNBC.com. http://msnbc.msn.com/id/11362964/.
3. ^ "Cheaper and still fast alternatives to refund anticipation loans". http://www.bankrate.com/brm/itax/news/20010131b.asp.