Refund anticipation loan risks

NewsChannel 10

Amarillo, Texas - At first glance it sounds enticing, getting your tax refund the same day you file your taxes. But a closer look shows a refund anticipation loan may not be your best option.

Many believe they actually do more harm than good, and just aren't worth the instant money they provide.

Janna Kiehl with the Better Business Bureau says, "A lot of times they will advertise that you can get your tax refund the same day that you file your taxes. People need to know that's not a tax refund you are getting that same day. The IRS doesn't work that fast."

What you are getting is a refund anticipation loan. It's not a tax refund from the IRS, it's a short term loan from the company preparing your taxes.

The amount is decided on by how much your tax refund is expected to be.

Kiehl explains, "You may be getting the amount back in your refund, but in most cases you're actually going to get less than that and you'll also have to pay fees or interests back on the loan."

The interest rate and administration fees can range from 40 to over 700% of your refund.

Meaning your actually spending more of your own money to borrow your own money for two weeks.

If you do qualify for an RAL, Kiehl says ask yourself this, "Do I want to spend money in the couple weeks or more to pay this loan back, or can I just wait and maybe work with some creditors if there are bills involved that need attention, until that money comes in, and that way it's my money and when I get it, it's free and clear?"

Waiting saves your money and puts more money in your pocket. An easy way to do that, file your taxes online.    

The IRS is working to get rid of refund anticipation loans. Last year, they stopped providing tax preparers with a debt indicator notification, which was used to decide which customers to offer the RAL.