Many people look at tax refund time as a second Christmas—the time when the government returns to you a chunk of money that had been withheld from your paycheck. Some people are so anxious to spend the money that they apply for a tax refund anticipation loan (RAL) so they can get the money as soon as possible.
RALs are loans that are repaid when the consumer’s refund is received in a temporary bank account set up by the lender. Many companies, like tax preparation companies, car dealerships, and furniture retailers, offer such loans with the help of bank partners. The consumer usually receives cash within 24 hours, in the amount of the anticipated refund, minus the fees for the RALs.
The interest rate on this kind of loan ranges from 0% to 10% annual percentage rates (APR). But the additional fees and charges can make the total cost much higher. The price to prepare a federal tax return often starts around $30 to $40, with another fee to file a state return. If you don’t pay these fees upfront, you may be charged additional fees to have them deducted from your return.
You must realize that RALs are loans, and you’re obligated to repay them in full even if your tax refund turns out to be less than expected.
A less expensive option is to file electronically using one of the free-file options listed on the IRS website. If you request direct deposit, you can have your money in 2-3 weeks.
Please also note that if you regularly get a large refund, you may be withholding too much from your paycheck. In essence, you’re giving the government a free loan. Instead, use the Tax Withholding Estimator to find the right amount for your situation. By reducing your withholding, you’ll be able to save a little more at each pay period.
If you find yourself in an emergency and in quick need of cash, ask Extra Credit Union for help. We may be able to offer you a short-term personal loan that gets you the money you need at a lower interest rate and with lower fees than you would find with RAL lender.
Routing Number: 272477432