Sometimes when you hire a tax preparer to file your taxes, they may ask if you would like to get your tax refund quickly in the form of a "Fast Cash Refund" or an "Instant Refund". While this may seem tempting and convenient, what they are actually offering you is a very high-cost loan, known as a Refund Anticipation Loan (RAL) or Refund Anticipation Check (RAC), which could end up costing you hundreds of dollars to get your refund a few days early.
Dangers of tax refund products
An RAL or RAC is not a fast refund. It is a loan. If the tax preparer makes a mistake on your taxes or your refund amount is less than what the loan amount is, you could owe money instead of getting some back. If you owe money from a previous RAL, you could have the outstanding balance taken from your current refund. If the IRS denies or delays your refund, you still have to pay back the loan. If you cannot make the payment, the lender will take actions to hurt your credit rating and may send your account to a debt collector.
The interest on an RAL or RAC amounts to 239% annual percentage rate based on the cost of the loan. For a refund of $2,150 a customer will usually pay the following fees:
- A loan fee (including temporary bank account): at least $100
- An application fee: at least $30
- A tax preparer fee: at least $145
- Check cashing fee: $65
- Total cost: at least $132
Some tax preparers no longer charge an application fee.
Avoiding tax return loans
RALs or RACs are offered at well known tax preparers, small companies, and even at used car lots. Anyone who offers to get you a return in less than one week after filing may be charging you high fees for what is really a loan. RALs are less common than RACs. With an RAC, the preparer sets up a temporary bank account where your refund is deposited. When the money arrives, the bank takes out the fees and issues you a check or a prepaid debit card. Then the bank closes the account. The fee structure with an RAC is similar to that of an RAL, which is why you should avoid them both whenever possible.
Free tax help
Depending on your income, you can have your taxes prepared for free at a Volunteer Income Tax Assistance (VITA) Program. Sites are usually open from January to April every year. There are two large organizations that serve the Chicago area: Ladder Up and the Center for Economic Progress (the Center).
The Center operates VITA sites in more than 25 communities throughout Illinois. Each year, it helps more than 30,000 families and individuals prepare and file tax returns and get all the tax credits they have earned and refunds they are owed. Click the link below to find a VITA site near you:
Getting a fast tax refund
If you want to get your refund by direct deposit, you must have a bank account. Your refund can be deposited into as many as 3 accounts. If you don't already have a bank account, you may be able to open one at a VITA site. Your refund can be deposited within 10 days. If you got the Earned Income Tax Credit (EITC), you will not get your refund before February 15, even if you file more than 10 days before then.
Updated: April 2018