Refund Anticipation Loan or RAL is nothing but a loan that you take out against your federal IRS refund. Almost all national tax preparation chains allow you to apply for RAL and then give you the money within 24-48 hours. The problem with RAL is that the extra money (APR) you pay for the convenience of getting your money within 24 hours is usually not worth it.
You won’t be eligible for RAL if your refund is less than $1000, which is after the tax preparation fees are deducted. The one hidden cost of RAL is the tax preparation fee that is included in the cost and is looked at by the taxpayer as “no upfront costs”. Here is the breakdown of a regular RAL:
1) $100 – $200 Bank Charge.
2) $30 – $50 Bank Handling Fees.
3) $100 – $300 Tax Preparation Fees.
Let me now make it more practical for you with an example. Let’s say that your federal IRS refund is $2000. You want your money within 24 hours because you need it! Even if you pay the minimum fees for your RAL, your refund after everything will look like this:
$100 RAL fees
$30 Bank handling fees
$150 Tax preparation cost
Total cost to get your IRS refund within 24 hours is $280. In the end you are just getting $1720 instead of $2000. If you like the convenience of your money the next day that you are willing to sacrifice 14% of your refund, I say go for it! Keep in mind that the above mentioned figures are minimum; expect at least 20% of your refund eaten by the fees.
So what’s the alternative? There is one very good alternative that is rarely mentioned and most tax payers are not even aware of it. There is no particular name for it and for that reason I will use the term that I know of, it is called the Refund Transfer.
In essence, it is a bank product but without the hefty fees for the convenience of getting your money the next day. If everything goes right and there are no delays from the IRS side, you can get your refund within 8 business days. Unlike RAL, Refund Transfer basically means that instead of you paying upfront for the tax preparation fees, you can have it deducted from your refund for a low cost of $30 bank handling fees. You can end up getting most of your refund without paying anything “out of pocket”.
If you really want to save money and get your entire refund without paying any fees, go the route most smart people go through. E-file your taxes, provide your bank account information to the tax preparer for direct deposit and pay the tax preparation costs upfront. When you pay upfront, most tax preparers will negotiate their fees and make you happy. IRS will send you the refund within 2-weeks!