Hartford, CT (1888PressRelease)
January 23, 2009 - Some cash-strapped taxpayers who are impatient to receive anticipated income tax refunds turn to Refund Anticipation Loans, RALs, or, as they are better known, instant refunds, which are offered by some tax preparers.
A RAL is essentially a short-term loan which covers the time it takes the tax preparer to receive the refund check from the Internal Revenue Service, (IRS) which is typically two to three weeks. While RALs may be a convenient source of instant cash, Connecticut Better Business Bureau warns they come at a high price.
CT BBB President, Paulette Scarpetti, says consumers should carefully consider the real costs versus the size of their anticipated refund.
“Taxpayers should keep in mind that an instant refund can cost more than the anticipated income tax refund. There are hefty fees associated with RALs that may make what appears to be a good idea, a very expensive route to choose. If the refund is less than anticipated, consumers will owe not only the money loaned but also hefty fees if they don’t pay off the RAL in time.”
The National Consumer Law Center (NCLC) found the annualized rate for a RAL can range from fifty percent to nearly 500 percent, despite the low risk to the lender. Some companies even tack on additional administrative fees.
Connecticut BBB offers the following advice and alternatives to an instant refund:
e-File and Direct Deposit
The fastest and most secure way for consumers to receive a tax refund directly is to file tax returns online and allow direct deposit of the refund to their bank accounts. This can take as few as eight to 15 days. Though this may be arranged by the tax preparer, BBB advises consumers to work directly with their banks to protect their account information.
Don’t fall for the “convenient” debit card
Some suspect tax preparers offer clients their refunds on “convenient” debit cards, which are often another way for the company or individual preparer to make money. These debit cards include hidden fees – as high as $20 per transaction, and may limit how much money consumers may access at a given time. This means consumers may end up having to pay the high transaction fees over and over again each time the card is used.
Shop around
If it is absolutely necessary to have the refund money immediately, your BBB encourages consumers to shop around for a good deal. Fees and rates for RALs vary by tax preparer. Consider alternatives to a RAL for urgent high-priced purchases, such as through store credit promotions and offers which may have lower rates.
Consumers may check out tax preparers’ records of integrity and performance free of charge, online in BBB Reliability Reports. These are found in the “For Consumers” section of the www.bbb.org web site, under “Check out a business or charity.”
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