As a secured debt, tax refund anticipation loan or simply refund anticipation loan (abbreviated as RAL) is designed to give taxpayers access to these funds redeemed at the end of the year. With a RAL, clients get a short-term loan which is easily approved since it is guaranteed by the expected tax refund of the taxpayer.
Applying for RAL
A professional tax preparation service is hired to perform the process of preparing the tax returns. Taxpayers apply through these services and a fee is charged. To protect the taxpayer from excessive fees, the Internal Revenue Service (IRS) declared a rule that prohibits professional services from basing the charged fee on the expected refund amount. The financial institution that handles the loan charges an additional finance charge.
Quickly approved through electronic filing
More than 15 million taxpayers enjoy tax refund advance loans every year. Electronic filing as regulated by the IRS allows for free application over the internet. Through this process, approved tax refund advance is received within three weeks. The relatively quick and hassle-free approval of tax refund application loan makes it very attractive to potential debtors.
Controversies surrounding tax refund advance
Similar to payday loans and title loans, RAL is considered to be a high-yielding yet low-risk loan that lending institutions can exploit. Furthermore, RAL is often marketed towards low-earning taxpayers who may have to pay 100 for a loan of about 2000. While this type of loan may have an exploitative nature, promoters of RAL argue that it helps people gain access to anticipated funds in cases of emergencies.
Those who oppose this loaning scheme, on the other hand, argue that relatively high interest charges are charged by the loan. Furthermore, since lenders are oriented towards earning profits, RAL is being issued most often to low-income taxpayers who may also have to wait longer for the refund.