Tax Refund Loan Alternatives

Bankrate.com
January 14, 2010
Bell, Kay

Florida Southern College associate accounting professor John Stancil says refund anticipation loans (RALs) are not necessary now that electronic filing and direct deposit allow filers speedy access to their refunds, and he attributes the survival of RALs to simple impatience. Some taxpayers have access to free e-filing through a partnership between the Internal Revenue Service and tax preparers and software companies, and the Free File Fillable Tax Form option allows taxpayers of all incomes to input tax data into online forms and file them at no cost; the latter option involves only blank online forms, not tax preparation software. Additionally, taxpayers who e-file and opt to have their refunds deposited directly into their bank accounts will receive their money in 10 to 14 days. Stancil notes that one major RAL provider hits borrowers with a 264 percent annual percentage rate. "All year long, taxpayers have made the government an interest-free loan, and now they are paying 264 percent to get their own money back a few days quicker," he says. Some RAL providers are giving borrowers a prepaid debit card to access their funds, which means they are hit with tax preparation fees, account fees, and finance charges on the loan plus fees tied to the card for ATM withdrawals and balance inquiries, among other costs -- all to get their return just a few days sooner.

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