Refund Anticipation Loan

Posted by

refund anticipation loan

One alternative to claim your tax refund quickly is to apply for one of the alternatives offered by tax preparers such as a refund anticipation check or loan. Prior to 2013, banks were offering refund anticipation loans, but that practice was discontinued. Even though banks were forced to forgo issuing this type of credit, tax preparation companies still make them.

How to receive money based on the expected refund?

General idea behind refund anticipation checks is that you don’t have to pay anything for tax preparation services until the refund is received. For that purpose, a bank account is created where the refund will be deposited and at that time tax preparation cost will be subtracted. Taxpayer then has an option to receive the remaining amount via direct deposit or a check. Additionally, having your taxes prepared by a tax firm or professional, you may gain access to a loan against a refund you are expecting. The loan is typically approved within a day or two from the time your tax return is accepted by the IRS; it is a speedy process to get a hold of funds. The refund that the IRS issues is at that point transferred to the loan issuing company and the process is complete.

How much does it all cost?

Refund Anticipation Checks are supposed to help taxpayers pay for tax preparation services therefore they are cheaper than the loans. Companies offering refund checks charge preparation fees ($25 and up) plus a fee to disburse the reminder of your refund ($20 and up). With the extinction of refund anticipation loans, similar services were created, often baring confusing names but essentially being the same as loans in nature. Regardless of the name, their cost is high. Typically, there is an initiation fee, interest rate that is often much higher than that of a credit card, and there is a fee to access the funds.

Is it worth it?

Only you can answer this question and it will depend on your urgency level and how you plan to spend the money. The main benefit of these loans is their nearly immediate availability; the flip side of the coin is their high cost. Because of the fees, I strongly advise against applying for any refund anticipation product.

Best alternative to a refund anticipation check or loan

The least expensive way to receive you refund in the shortest possible time is good management of your financial records. Start planning 2014 tax season today by organizing your records (see our post helping you to arrange your records) and have a plan on how to file and what you will do in January 2014. If you decide to file your taxes electronically, you can receive a refund in 3 weeks or less. Even if you have your taxes prepared by a tax professional, have everything organized and schedule a meeting as soon as your W2s or 1099s arrive. File early, avoid hassle and get your refund fast, and free of fees.

Leave a comment