Posted by Brian McCullough
Tax season is here of course, so I’m going to be keeping my eye out for good tax planning/preparation content.
Personal finance blog WiseBread has a post up about a new phenomenon I hadn’t heard of before.
It’s called a Refund Anticipation Loan (RAL). The idea is, you go to a tax preparer like H&R Block, and when they calculate what they expect your tax refund will be, they give you a loan of that amount on the spot. This way you don’t have to wait the weeks and weeks it usually takes for Uncle Sam to cut your check.
Hmmm… sounds like they might take a healthy cut in fees for that sort of “service” doesn’t it? Turns out, this is exactly what happens.
Want your money today? If approved for the Instant Refund Anticipation Loan (IRAL), you can get your $200 tax refund check today for only $77.23! (This includes a $20 check processing fee, and a $27.28 finance charge at 481% APR.) Oh, did I forget to mention that you will also have to pay a $29.95 Refund Account Fee?
If you’re credit isn’t so great, however, you won’t be able to walk out the door with check (or loaded debit card) in hand. You will only be eligible for the regular Refund Anticipation Loan (RAL), and will have to pay the same $29.95 Refund Account Fee, plus $52.09 in finance charges and fees. You’ll get your money in about 8-15 business days. (This is the same number of days that H&R Block claims the government would have given you your money anyway. They also make NO claims that this timeframe is guaranteed by getting a RAL.)
So, basically, you’re paying Pay Day Loan-like fees to get your money in… oh… about the same amount of time you’d have gotten it anyway. And if you don’t already know that Pay Day Loans are bad deals, well… now you know.
Not surprisingly, WiseBread doesn’t think this is a good deal and advises you to decline any RAL offers.
I know I’m a thriftier guy than most, but I can’t see ever paying extra money just to get my money. It’s MY MONEY. I can see that there are certain financial crisis situations where time might be of the essence. But most people use their tax refunds to splurge on big ticket goodies. So it makes no sense to give away a third or more of your flat screen tv windfall just so it shows up a week earlier. The writers are still on strike anyway. There’s nothing good to watch yet.