Refund Anticipation Loans

In the likes of Payday loans and cash advances comes the trend of Refund Anticipation Loans. Sometimes called pay stub RALS or holiday RALS, these are another high interest short-term loan that is an unnecessary way to borrow money.

Typically they are offered to consumers by tax preparers. They offer you a loan based on the amount of money you are anticipated to receive from your tax return. Why not? It sounds like a good idea. Many of us don't like to wait for our return, but we do. Why? Because paying a fee to get your own money when it is not necessary is not a smart financial move.

A regular RAL is an advancement of your tax return after you have filed. A holiday or pay-stub RAL can be done before you even receive your W-2 form. They will use your last paycheck to estimate what your return should be. This could be very hazardous if it is not completely accurate. They may actually loan you more money than you will get back from your tax return and then you will have to come up with a way to pay that amount back.

Some companies are even taking advantage of the holiday season and offering this service in November and December. They take your last paycheck and estimate what you will make the rest of the year and figure what your tax return might be. This way you have some money for the holidays.

As you may expect these loans do not come without a price. There is usually a fee charged that is added to the amount it costs for your tax preparation. There are also interest fees and penalties if you don't pay them as soon as you get your return.

If you get a RAL from one of the main tax preparers you will then have to return to that same company to do your actual tax return. So even if you were planning on doing your own taxes you will have to pay for their services for them to do your taxes for you.

It's not only tax preparers that are trying to take advantage of your tax return. Many retail stores will let you bring in your taxes and estimate your return. They then let you use that anticipated money to purchase or put a down payment on appliances, furniture, or other products.

Car dealerships have also encouraged people to use there anticipated tax return for a down payment on a new car. If you were planning on using your return to purchase a new appliance or vehicle why don't you wait until you receive your return and avoid any fees that these businesses will charge you for loaning you the money early.

So you have to ask yourself if it makes sense to pay someone a fee for YOUR money just to get access to it a little sooner.

There are plenty of ways for you to get your tax return sooner without having to pay extra. Employers are required to give you your W-2 by January 31st. You should also have any other tax forms by that time. There is no reason that you should wait until April to get your taxes done.

If you have not done so in the past it is encouraged that you file electronically. There are programs that assist you with your filings and you will be looking at a lot faster return. By visiting the IRS website you can find information about free online filing. They will help you prepare your taxes and file your return electronically. This will save you money if you were planning on going to a professional.

When you file electronically you will have the option of direct deposit. By choosing this option you will receive your return even sooner. It is estimated that your tax return will show up in your account 10-14 days after you file, if not sooner. Besides, wouldn't you feel more comfortable knowing that your check can't be lost or delayed in the mail? Two weeks wait time is definitely worth the amount of money you will save instead of choosing a refund anticipation loan.

Like many short-term loans that come with high interest rates, RALS are targeted towards those who are struggling and may feel that they are in need of their return early. It's these same people who should not be taking out more high interest loans, especially when it is not necessary.

So do not be tempted by the advertising and lure of an early tax return. Remember that it is your money and you deserve to keep all of it.

Pioneer Credit Counseling is a bonded, non-profit credit counseling agency offering debt management programs, financial counseling, bankruptcy counseling and housing counseling nationwide. Call our friendly counselors today at 800-888-1596 or visit www.pioneercredit.com.

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It is our policy at Pioneer Credit Counseling not only to help people get out of debt, but also educate in sound budgeting practices.

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