Refund Anticipation Loans Suck

by Ryan Guina

It’s tax season, and many people look at tax refunds as an easy way to get some “free” money. The truth is, your tax refund isn’t really free money. It was yours to begin with. You just gave too much to Uncle Sam and he was nice enough to hold it for you in an interest bearing account where it would earn interest… for the government.

So now it’s time to get your money back. Once upon a time, people had to wait until the IRS sent the refund check to you. That could take up to 2 months or more. But now, in the age of electronic filing and funds transfers, people can receive their refund in a matter of days. Unfortunately, some people aren’t satisfied with mere days. They want it now! Enter the Refund Anticipation Loan (RAL).

Refund Anticipation Loans are a bad deal for consumers

The Refund Anticipation Loan is quite possibly one of the worst things to happen to taxes since… well, taxes. Seriously, RALs are awful. Tax companies offer people inflated loans through a third party bank (sometimes affiliated with the tax company). These loans are secured by the tax return they just filed on your behalf, and your tax return is automatically deposited to the lending bank to repay your Refund Anticipation Loan.

Of course, the tax companies will charge you a pretty penny to take advantage of this “convenience.” Associated charges and fees normally include loan application charges, finance charges, a fee to have the payment issued to you in a check vs. electronically, rush charges, and possibly additional fees.

Refund Anticipation Loans are not much faster than direct deposit. On top of this, some tax preparation companies will not even guarantee you will receive your money within a certain time frame. They often claim they can can get you that loan in 1-2 days, whereas the quickest you would receive it from the IRS is roughly 1-2 weeks. Another “benefit” they tout is that there are no upfront fees. Tax filers can have their tax preparation bill deducted along with their associated RAL fees, which is repaid directly to the lending bank.

How much do they cost? A lot! H&R Block publishes their RAL price list. It can cost well over $50 to get a RAL on a $200 tax return. In some cases, the cost of a RAL is well over $100. Jackson Hewitt has a Refund Anticipation Loan page and a Money now Loan page, but neither lists the cost of the service. My guess is that it is much easier to confuse people by springing it on them at the last minute.

Refund Anticipation Loans are essentially payday loans that are guaranteed by your tax refund. Tax refund companies prey on tax filers’ ignorance about the product, or their need (or greed) for the money quickly. The best thing to do is avoid Refund Anticipation Loans completely, or you just might get raked over the coals.

Published or updated February 8, 2009.
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{ 24 comments… read them below or add one }

1 fathersez

Spending tomorrow’s money or money we do not have today always sucks.

It’s a pity that so many people keep falling for this.

Advice against “Counting our chickens before they are hatched” is not something to be sneered at.

Your statement “Being raked over coals” is so apt!


2 Katie

Someone asked me this year if I did the RAL. I said,”No. I never do.” Their response? “I have to. I can’t wait 2 weeks for the IRS to deposit the money”.

I always wonder… what would they have done if they had to wait those two weeks? Better yet, what if those two weeks never came because they OWED money?


3 Frugalchick

Just to add to Katie’s comment, I wonder too why would a person not be able to wait two more weeks when they already “loaned” out that money to Uncle Sam for a year?


4 Wes

Generally, I ot for extra withholding to make sure I don’t owe the IRS any money @ the end of the year.

Some health related expenses recently caused me to fall behind on mortgage payments. The bank issued a deman letter giving me til Jan 15th to catch up the past due amt (approx. $2500).
After a lot of crying & hopelessness, a friend asked if I expected a tax refund. While I am expecting more than the amount needed to pay up my mortgage, I’m not sure that even filing electronically would get the money back in time.

Any suggestions (other than going for a tax refun loan)?



5 Ryan

Wes, I recommend talking to someone at your bank and requesting an extension or a payment plan. Some lenders are willing to do this. Another option is to try and get a loan from a Peer to Peer Lending company such as Lending Club or Prosper.

Best of luck.


6 Mrs. Micah

Thanks, Ryan. What I want to know is if there are any fees associated with that Emerald card that H&R Block is pimping. I shall have to check.


7 Dividend growth investor

I personally think the number one reason why there are refund anticipation loan practices as well as check advance firms is because most people are financially illiterate. Maybe schools need to teach high schoolers personal finance 101?


8 Erik

These loans are such a joke. If you can’t wait a month or so to get your refund, you really have a problem.


9 Low Income Family

We are a low income family and always get a really great tax refund we get the RAL so we can get things our house might need or we might need and help out our other family members I dont see why the people on here don’t think about those of us who don’t have alot of left over money during the year and look foward to tax season-Some of us are not as lucky not to have to worry about when its coming-we live in our means and keep a budget-But this is well earned through the year and if you don’t want to wait then you get a RAL or other quick refund system-So I don’t think its Stupid or anything like that-And I cant belive any of you would say someone has a problem who cant wait!!!!!!!!!


10 Ryan

Low Income Family,

If the money is needed immediately for living expenses or bills, then a RAL is not stupid. It is a necessity.

However, I think those who pay an additional $75-100 (or more) to get their refund a week early so they can have drinking money for the weekend are leaving money on the table. And many of the people leaving money on the table are those who claim they “need” the money.

There is a fine line between need and want. Those who need the money immediately pay the fees because they need to. Those who want the money immediately but choose not to wait are paying a price they did not need to pay.


11 Christmas for my children

We are a family of 6 who live pay check to pay check and it just would have been really nice to have had the opportunity to have had some money for christmas. Yes, I would pay 100$ to get my money so I could give my children a really nice christmas. But, it is what it is and we will make the best of it!


12 ibdern

It was yours to begin with. You just gave too much to Uncle Sam and he was nice enough to hold it for you in an interest bearing account where it would earn interest… for the government.

Not exactly correct. Alot of people who do RAL’s qualify for the sweet refundable credit called the “earned income tax credit (EITC)”. This is not their money they had on loan to the government interest free. This is free money from the government. Taxpayers earning less than $39,783 with qualifying chidlren can qualify for up to $4700 in a refundable credit without paying $1 in to Uncle Sam. (Other rules apply) but the point I am trying to make is:
It really wasn’t a loan by that taxpayer to Uncle Sam, just by all the other taxpayers who don’t qualify for the EITC.


13 Christmas for my children

If you think RAL’s are a rip-off to the low income family, take a look at the my cash!! Let me know what you think about that.


14 Ryan

Christmas for my children: All payday loan companies charge outrageous fees!


15 awisertaxpreparer

If you’ve been juggling your finances for the last year, why can’t you juggle your finances 7 to 21 more days and put the $50 to $200 for the bank’s finance charges back in your wallet. The banks and the tax prep companies are bleeding you! I use to work for H & R and know that they charged an extra $37 for electronic filing to send your information to the bank, an exorbitant amount of money for their prep fees for their second-rate services, and their contract (probably partially-owned) bank makes about 300% APR on your gullibilty. P.S. That “friendly” tax preparer across the desk from you is getting a commission or bonus for signing you up for the RAL (and the Peace of Mind or Exteneed Guarantee too)and H & R Block gets a bonus as well. At least they’re happy. Who cares if you’re out a couple of hundred bucks, right? They doing you a great service!! So go to Jackson-Hewitt. I worked for them for one tax season and, yeah, they’re operating the same racket. Listen to the money experts or read money advise on the internet, and you will find that the RAL’s are rip-offs. Juggle a few more days and come out with a couple of extra hundred dollars in your pocket that you alledgely need so badly. You must not need it too bad if your willing to blow it on the banks and the tax prep office. But, hey, that what these bottom-feeders live for! They’re banking that you can’t juggle those bills around for up to three more weeks. Newflash!! I’ll bet (if I were a better – which I’m not) you’ll be juggling those bills around within a week after you get your refund in one – three days. Again!!


16 awisertaxpreparer

It’s hard enough to get the teachers to teach and the kids to stay in school long enough to read and write. Personal Finance? Hah! Civil Disobeiance 101 and Disrespect 101 is probably top priority.


17 velmeezee

I have been filing my taxes with H and R block since 2000. I usually get the RAL and have the money within 48 hours. Last year the RAL prevented myself and my children from having to sleep in my car for weeks. I had a roomate who kept flaking out on his portion of the rent. The landlord got tired of accepting half rent and excuses until I could pay the rest on my next check. He didn’t evict me because he knew my situation and I’d always had my half on time. However the condition was that I had to move out by Jan 1st. So for 2 weeks we had to couch-hop with friends and family until I could get my RAL. It was horrible. The RAL was enough for me to put a deposit and first month on a place for myself and children SANS deadbeat roomate. So you can imagine I was hardly concerned with the fees associated with this product. This year I have to use my RAL money to pay off parking tickets my step-dad got on my car, and a ticket I got for accidentally driving with my headlights off. My drivers liscense will be suspended on Jan 25 if I don’t pay it, so I can’t afford to wait for a traditional refund check.


18 JR Miranda

Low Income Family,

The tax companies (h&R Block, jackson Hewitt, etc…) are exploiting the poor and desperate. I work at a bank and I can tell you more than half of my customers don’t realize it’s even a loan. I hate to see people getting ripped off. The interest rate is usually 99.9%- that’s outrageous! If you e-file and get your refund direct deposited into your account, it only takes about 10 days. That’s it. I don’t make much money either, and I also have a family to support and look forward to the relief the tax return brings, but I’ll be damned if I’m going to be ripped off while trying to get my own money. I also file for FREE- no need to pay a corporation to do my taxes.


19 Ryan

JR Miranda: I agree, these RALs are awful. There are some states that are working to ban them, or at least cap the interest rate on them. I think that is a reasonable idea.


20 cheryl

Does anyone know where you can get a loan against your taxes without going through H&R Block. They did our taxes but we need to send them in because we are filing late. We signed for direct deposit so the money will be there automatically. Any help will be greatly appreciated


21 Dovie

Is there anyone that does a refund anticipation loan right now other than Jackson Hewitt?


22 Ryan

I’m not sure. No one will do it until they know how much your refund will be, and tax forms won’t be released until January. So that would be the earliest you would be able to apply for a tax refund anticipation loan (unless you still haven’t filed for 2008 taxes).


23 lisa

i’ve noticed a lot of my peers complaining that this year either their return is half of what it was the prior year OR they owe money. i didn’t make any more money than i did in ’08 and my return is about half of what it was. at least i don’t owe. thank god. i also noticed that when i compared my H&R block e-file with one I did by hand on the 1040EZ, the H&R block return amount was short about $40.00. I’d rather do it by hand and mail it in and get an extra $40 than get gyped.


24 Lamartine

Read the following Book; Broke, USA: From Pawnshops to Poverty, Inc.How the Working Poor Became Big Business

I enjoy the discussion here and I have to highlight the financial illiteracy that continues to hold people back and negatively affects generational wealth and prosperity. The referenced book provides insight and understanding as to why it continues. Illiterate consumers makes happy, rich retailers. If we really study our spending habits, balance them against long term financial goals, then invest in assets vs. liabilities we’ll be amazed at what we can accomplish.


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