Don’t be fooled, Refund Anticipation Loans are a bad deal.
Refund anticipation loans (RALs) are short-term loans secured by your expected income tax refund. While it may seem like an easy solution to get fast money, it comes with a price—excessive fees. You may not realize how much the loan will really cost you since you don’t have to pay anything out of pocket when you receive your money from the lender. For example, if the tax refund is estimated at $1,500, you may only receive a check for $1,200. That’s $300 in fees! Typical costs associated with getting a RAL include:
- Tax preparation fees
- Refund anticipation fees (interest with Annual Percentage Rates as high as 150% or more)
- Electronic filing fees
- Documentation fees
Another major downside – if the tax preparer overestimates the amount of your return, you are still on the hook for the total loan amount plus interest. There is some good news though. Recent action by federal regulators to curtail these abusive lending practices means that this is the last year that major banks will be offering these loans. However, smaller payday lenders may still offer some version of these loans, so be very cautious.Instead, seek out cheaper and even free ways to receive your expected cash from your federal refund. The Internal Revenue Service sponsors free federal tax preparation and often fee filing on its website and free assistance through its Volunteer Income Tax Assistance program.
If you have a bank account and file electronically, you can have your refund deposited automatically in two weeks or less! If you have a Higher One Account, setting this up is really easy. Just follow the instructions on your tax form and include the following account type and routing number on the form:
- Account type: Checking
- Routing number: 113024588
- Account number: Simply check your online statement
Electing to have your federal refund directly deposited is a free and secure way to get your money fast!