Just discovered you'll be getting
a tax refund? Don't let your enthusiasm to spend that
unexpected money get the better of you.
Thanks to today's technology, there's
really no need to pay extra for a refund anticipation
loan, or RAL, just to get your hands on your tax money a tiny
bit sooner. If instant cash
is more a desire than a need when considering a quick
refund, consider these alternatives:
- Go electronic: Abandon
the traditional paper return sent via the U.S. mail
and file from your computer. Last year, more than 73
million taxpayers filed their returns electronically.
You'll get the money almost as fast as you would with
a refund anticipation loan and get it without paying
any loan fees or interest.
In fact, you may not need to pay for anything. An
Internal Revenue Service partnership with tax preparers
and software companies offers free
online tax preparation and e-filing to some taxpayers.
The IRS says that whereas paper filers could wait up to eight weeks for their refunds, most electronic filers
can expect their tax checks to show up in their mailboxes in half that time or less. The agency also points out that the error rate is less than one percent for electronic
- Direct deposit:
Electronic filers who opt for refund direct deposit
do even better. More than 61 million people got their
refunds this way last year, an 8 percent increase from
the year before. The IRS says the money generally
shows up in taxpayer bank accounts in 10 to 14 days.
Even if you file the old-fashioned paper way, having
your refund deposited directly into a bank account
cuts the time you have to wait for your tax cash.
Plus, it's added protection against lost or stolen
refund checks sent via the mail.
store financing: If you want your
refund to finance a must-have new appliance, store
interest rates usually will be better. Many stores
offer free financing for limited time periods. By
then, the refund should have arrived and you can use
it to pay off the store credit -- and pay no interest
But ultimately, a refund anticipation loan is a
personal preference, not a fiscal issue for taxpayers. Watch: "Refund anticipation loans"
"Theoretically, with electronic
filing and quicker turnaround on refunds, the need for
tax anticipation loans has become obsolete," says
John L. Stancil, an associate professor of accounting and
tax at Florida Southern College in Lakeland. "However, my observation
is that they appear to actually be on the increase,
as people become more and more impatient to get their
"One sample I saw from a major
company who provides these loans through tax preparers
disclosed an annual percentage rate of 264 percent on
the loan," he notes. "All year long, taxpayers
have made the government an interest-free loan, and
now they are paying 264 percent to get their own money
back a few days quicker."
Companies that offer refund loans, such as such as H&R Block, are well aware of such impatience, and
that's why the loans survive even as electronic filing
The tax-preparation giant notes on its Web site, "Taxpayers choose refund anticipation loans because they can receive money in one to two days, compared to waiting up to 15 days for a tax refund to be directly deposited into their existing bank account or three to eight weeks for a mailed IRS refund check."
That pitch definitely appeals to those who value speed over cost, such as a person who stands impatiently in front of the
microwave wondering when dinner will be done.
But if you can squelch your refund
appetite for just a few days, then you -- and your bank
account -- will be better off.
Updated: Jan. 31, 2008