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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