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'Anticipating' Your IRS Refund Can Cost You Plenty 

James Dimmitt -- The tax season is upon us and so are the popular "refund anticipation loans." Consumers who opt for RALs wind up paying a big chunk of their refund on fees.

While accountants are reaching for aspirin, millions of Americans are reaching for some fast cash this tax season. Unfortunately, those who reach for fast cash in the form of a "refund anticipation loan" are getting hit with interest rates and fees that are out of this world.

The tempting ads are plastered in newspapers and on television for "fast cash refunds," "express refunds," or "instant refunds." The ads offer to get your refund in a day or two, or, in some cases, even instantly.

What is a "refund anticipation loan"? It's a loan that borrows against your anticipated tax refund from the IRS. Refund anticipation loans, or RALs as they are known in the tax industry, carry annual percentage rates (APRs) of about 60% to over 700%, a fact that many consumers either don't realize or simply overlook.

RALs are marketed to people who need money the most, such as low and moderate income workers. A report by the National Consumer Law Center notes that "about 40% of the 12 million refund loan customers in 2000 were families who received the Earned Income Tax Credit, the largest federal poverty assistance program." And since the RALs often use the term "refund" in their ads, many of those who take the bait don't realize that they're receiving a loan and not their actual refund from the IRS.

The fees associated with RALs are expensive. For example, let's say the IRS owes you a refund of $2,000. In order to get a RAL, you pay the following:

-- RAL loan fee = $75
-- Electronic filing fee = $40
-- Tax preparer's fee = $100.

Total fees associated with your RAL = $215, which is more than 10% of your estimated refund. The APR on your refund loan equals a whopping 142%!

Many low and moderate income workers are without bank accounts and wind up paying an additional fee to set up a one-time-use account so that their IRS refund can be direct deposited.

Before giving in to the temptations of refund anticipation loans, ask yourself if you really need your money that quickly. If you can wait just a bit longer for your refund, you'll line your own pockets with extra cash rather than forking it over to a RAL lender.

A great way to save money at tax time is to go to a Volunteer Income Tax Assistance (VITA) site. VITA sites provide free tax preparation to low and moderate income taxpayers and are sponsored by the IRS. They can be found in libraries, community centers and other locations during the tax season. To find a VITA site, call the IRS general help line at 1-800-TAX-1040, or visit

James Dimmitt is editor of "To Your Credit," a FREE weekly money-saving newsletter. He is also author of "Identity Theft -- How To Avoid Becoming the Next Victim!" located at: For more details, also visit:

© 2004 James Dimmitt

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