A Refund Anticipation Loan (RAL) can put money in your hands now, but you need to watch for these hidden tricks that can leave you in worse shape than you are now!
A RAL is a loan based on what you expect to receive from your Federal and / or State income tax refund. Like any other loan, you have to be aware of the hidden fees that some companies try to stick you with; take Beneficial's filing fees for refund anticipation loans back in 95 which amounted to a 250% APR for a $1,000 refund!
RALS are low risk loans that pay big bucks to lenders and tend to target the lower income. If the IRS has initiated communications through email, then you need to read this!
If you are careful and avoid the scams then expect to pay between $80 to $110 in fees for a $2,000 to $2,200 refund. If you are paying more than this and your refund is less than $2,200, then I'd look elsewhere!
A popular trick that has been used by some lenders is keeping you in the dark about Cross Collection - here is how that works... Say that you had a refund anticipation loan last year with Tax Preperation Company A and you have not paid their fees, Tax Preperation Company B (the new one you are using this year) can take all the fees owed to Company A out of your refund before you receive any money!
The most popular trick is to make the customer believe that their refund will take a lot longer than expected, and that a refund anticipation loan is the quickest way to get your money. This is NOT necessarly the case and if you visit a government tax office, you'll see that there are many ways to receive a quick refund and still do it yourself!
Some excellent reading on RAL's from the U.S. Government:
Refund Anticipation Loans (RALs) - Information from the Government.
Beware of the Refund Anticipation Loan (RAL) - by NY Government.
Role Of The IRS In The Refund Anticipation Loan Industry - By the National Taxpayer Advocates.