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I've heard a lot about the tax refund anticipation loans offered by some tax preparers, but I never quite understood how they worked. What exactly are they, and who is eligible to receive them? What are the benefits and drawbacks of these "loans"?
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Tax Professional Answers
Conrado Mangapit, EA
The Refund Anticipation Loan or RAL is no longer available as a financial product that can be offered in the tax preparation industry. It worked like this:
1. You know you have a substantial refund coming but you can't wait for the IRS to release the funds.
2. You apply for a BANK loan to receive a portion of the refund within a 48 hour period.
3. The bank will process the RAL request following the procedures they normally take (ie, credit check etc).
4. The bank approves the RAL and they give you your loan (minus bank fees, credit check fees, interest, tax preparation fees).
5. Once the IRS releases the funds, the funds go to the Bank. The bank then pays off the loan and sends the balance to the taxpayer.
The primary reason why Refund Anticipation Loans were done away with was because the interest rates charged by the banks were greater than 80%
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593 weeks ago
1. You know you have a substantial refund coming but you can't wait for the IRS to release the funds.
2. You apply for a BANK loan to receive a portion of the refund within a 48 hour period.
3. The bank will process the RAL request following the procedures they normally take (ie, credit check etc).
4. The bank approves the RAL and they give you your loan (minus bank fees, credit check fees, interest, tax preparation fees).
5. Once the IRS releases the funds, the funds go to the Bank. The bank then pays off the loan and sends the balance to the taxpayer.
The primary reason why Refund Anticipation Loans were done away with was because the interest rates charged by the banks were greater than 80%
Edward Bender
I do not believe RAL's are a good idea. With electronic filing and direct deposit (even to pre-paid cards), the longest wait time is 14 days, and does no one any harm waiting for it. Those that "need" the money immediately should seek other, low-cost alternatives to the RAL method.
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593 weeks ago