What is an Instant Tax Refund or Refund Anticipation Loan?

What is an Instant Tax Refund or Refund Anticipation Loan?

Last updated: January 2007

What is a Refund Anticipation Loan?

A refund anticipation loan is basically an instant tax refund. Refund Anticipation Loans (or “RALs”) are what you get when you go to a tax-preparer’s office and they tell you that you can get an “instant tax refund” right then and there or in a day or two. The tax-preparer charges you a fee to fill out your taxes for you and then charges you another fee to give you an instant tax refund. 

While many people are happy to get their tax refund without waiting, this might not be the smart way to go.

What happens if I get a Refund Anticipation Loan?

The tax preparer is actually loaning you money. Then the tax-preparer will keep your tax refund when it arrives.  Like all loans, you have to pay interest for this loan. What most people do not realize is that the interest rates on RALs are very steep. RAL’s average interest rates are over 200%. That’s right - RAL interest rates are ten times as high as a credit card with a 20% interest rate! Plus there are filing fees of about $40-$50 tacked on as well and, finally, you have to pay the cost of the tax preparation. 

How much will an RAL cost me?

An RAL might take 10-20% of your total refund plus fees! This means that if your tax refund is $500, you might only get about $350. If your tax refund is $2000 then an RAL could leave you with as little as $1550.

Should I get an RAL?

It’s smarter to say “no” when the tax preparer offers you an instant tax refund for a fee. You will avoid a big bite out of your refund check by waiting.  

How much longer will it take to get my refund?

You will get your tax refund from the government in a relatively short time, especially if you  file electronically (“e-file”) and ask for direct deposit in your bank account. This takes about 10-14 days and could be quicker. 

If you do not e-file or get direct deposit of the refund in your account, the refund will take about 6-8 weeks. So you should decide whether you want to pay over 200% interest plus fees to get an instant tax refund or wait a short time for a larger refund to come from the government.

Remember:  An instant tax refund  is actually a high interest loan. If you wait for the government to direct deposit or mail you the refund, you will avoid the 200% interest and fees that come with these loans. PATIENCE PAYS!

What if I need money now?

You should avoid taking out a refund anticipation loan if at all possible. If you need a loan try a credit union, or see if a friend or relative can help. Think about whether you really need the cash today. If you can wait a few weeks to get your tax refund instead of taking out a loan now, you'll save about $100. If you have a bill that must be paid try asking for more time and explain that you will be getting your tax refund in a week or two.

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Prairie State Legal Services, Inc. - Kankakee Office
191 South Chicago Kankakee, IL 60901 | View map

Phone: 815-935-2750
TTY: 815-935-2764
Toll-free: 800-346-2864

Languages: English
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Prairie State Legal Services, Inc. provides free legal services in civil legal matters for low-income persons who have incomes below 125% of the federal poverty guidelines and senior citizens age 60 and older regardless of income.

Eligibility

Whether you are eligible for help from Prairie State Legal Services depends on the following factors:

  • You meet our income and asset guidelines, or are age 60 or older.
  • We have no ethical conflict of interest regarding your legal issue.
  • You live within the service area of Prairie State, or have a civil legal problem in one of the counties in our service area.
  • You meet the citizenship or immigration requirements established by Congress. It should be noted that immigrants who are fleeing domestic violence or trafficking are eligible for legal help regardless of immigration status in matters to address the abuse.
  • Government regulations do not prohibit Prairie State Legal Services from handling your type of legal problem.
  • You have one or more legal problems that can be addressed by PSLS attorneys and that fall within our established priorities.

Types of Legal Help

Due to high demand for our services, our staff is able to provide representation in certain areas of civil law designated as a priority. The following kinds of problems are illustrative of the cases that we may be able to help with (not an exclusive list):

High Priority Cases

  • Family Law: Protection from abuse or exploitation of domestic violence victims, elderly, children and persons w/disabilities; divorce and related relief for domestic violence victims.
  • Housing Law: Evictions and lock-outs; foreclosure defense; loss or denial of subsidized housing benefits; loss or denial of essential public utilities; substandard housing conditions cases that cannot be addressed by other agencies.
  • Health Care: Loss or denial of medical or nursing home care; loss or denial of medical benefits (Medicaid, Medicare).
  • Needs-based government assistance: Loss or denial of SSI, GA, TANF, VA, food stamps.
  • Other income benefits where alternative representation is unavailable: Loss or denial of unemployment insurance, Social Security Title II benefits.

Other Cases We May Handle

  • Family Law: Child support, custody, guardianship, visitation, parental rights, divorces for non-domestic violence victims.
  • Housing: Rent issues; security deposits; unit size; discrimination.
  • Education: admission, expulsion, special education & related services.
  • Health care and people with disabilities: powers of attorney and other health care documents; discrimination and reasonable accommodations.
  • Income or benefits: overpayments of government assistance; health insurance matters; employment issues.
  • Consumer Law: Bankruptcy or other debt relief; consumer fraud; protection of exempt income and assets; unfair debt collection practices; repossession; contract defenses.
     

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