The Cost of Refund Anticipation Loans

  Although some companies offer refund anticipation loans during tax season, these loans can actually cost consumers money. Arkansans planning to receive a refund this year often are excitedly looking forward to a lump sum return. But when opting to use a refund anticipation loan, consumers rarely plan to give a large portion of their tax returns to interest rates.   Refund anticipation loans (RALs) and refund anticipation checks (RACs) are high-interest loans that must be repaid by the actual tax return proceeds, essentially borrowing your own money. If the actual tax refund amount is less than estimated, the buyer is on the hook for the difference.   “Waiting on the government to issue a tax return can be frustrating,” said Arkansas Attorney General Leslie Rutledge. “But a refund anticipation loan or check can take a substantial amount of your hard-earned money out of your tax return check. I encourage all Arkansans to practice patience to ensure they receive their entire tax refund.”   Attorney General Rutledge released the following considerations before agreeing to have taxes prepared as part of a Refund Anticipation Loan:

• Free or low-cost options such as the online Internal Revenue Service (IRS) Free File program or the Volunteer Income Tax Assistance may be options.
• Electronically-filed returns can be deposited in bank accounts in as few as eight days.
• The IRS can also provide refunds by check or prepaid debit card.
• Always get a written list of fees before entering into any agreement or requesting tax preparation assistance.

Refund Anticipation Checks are similar to Refund Anticipation Loans and can be attractive to some consumers because businesses often waive tax preparation fees, but many Arkansans can obtain free tax preparation services. The IRS provides a Free File program online that is a federal tax preparation and electronic-filing program for approximately 70 percent of taxpayers who earn less than $66,000. Eligible consumers can go to IRS.gov and choose from multiple private companies that will file federal returns at no charge.   Some Arkansans may also be eligible to receive free help through the Volunteer Income Tax Assistance program. Meanwhile, seniors can contact AARP to learn more about the tax preparation services they provide.   Arkansas’s “Refund Anticipation Loan Act” requires rates to be posted and clearly stated for all consumers to see, and, among other requirements, they must be provided with a written statement explaining the loan or check-issuing process. Those offering Refund Anticipation Loans are prohibited from charging additional fees or requiring consumers to take out such loans in exchange for tax services.