Rapid refunds are also known as refund anticipation loans (RAL). For people who wish to receive fast rapid refunds, they are offered by some commercial tax preparation firms and banks.
Rapid or instant refunds are really loans. Consumers are charged a loan fee ranging from $29 to $120 with the intention of receiving their money early. The Annual Percentage Rate (APR) on these loans can range from 40% to over 700%.
Additional fees for electronic filing and tax preparer can also be added which can wind up costing you 10% or more of your total tax refund. Moreover, if the Internal Revenue Service (IRS) delays or denies you a refund or gives a refund that is smaller than you anticipated, they must be repaid since the refunds are also loans.
In order to avoid paying unnecessary fees for a rapid refund, consider any of the following options:
- In order to avoid adding the cost of RAL fees onto current debts, if possible, delay paying bills or ask for extensions.
- Have taxes done for free at a Volunteer Income Tax Assistance (VITA) site. Information on VITA sites open in Connecticut during the tax season can be found by calling 2-1-1.
- Open a bank deposit account - this will allow you to receive refunds by direct deposit.
- Don't go to check cashers - extra fees are charged to cash tax refund checks.
- File tax returns by E-File - this can speed up your tax refund, particularly if the IRS deposits your refund directly into your bank account.
Since the advent of the computer age, and the great invention of the internet, the Internal Revenue Service has been fairly quick to react to the benefit of electronic filing. The returns are filed much faster, refunds are made faster, and money due the IRS can be obtained faster.
On the surface, this might seem like a great idea. Pay a fee, and get the refund now instead of later. But there are some problems with this service that many people either don't know about or overlook:
- The people who elect to take the rapid refunds are often the people who can least afford them, so the process tends to take advantage of the poor.
- The fees you pay for the rapid refund aren't getting you your refund that much faster Professional tax preparers usually file returns electronically, so the refunds, without the extra service, can often be had in as little as ten days.
- You are paying someone to lend you your own money!
- The fees are high; they average about $100 per refund.
- When the fees are considered as interest, the interest rate can amount to more than 500% annually, a rate comparable to those of payday loans.
Let's take a minute to look at the different refund options that offers what to the individual taxpayer.
- Standard paper filing
- Electronic filing with direct deposit
- Rapid refunds, and
- Refund anticipation loans
The standard paper filing, although many are more familiar with this method of filing, is slowing reaching obsolescence. There will soon come a time that the old system of paper filing will be entirely eliminated and replaced by the electronic filing methods.
If you are still one of the dying numbers of Americans who files a paper return, you should anticipate receiving a refund in about 6 weeks; today, thanks to the great use of the internet, 6 weeks to receive a refund, seems like an extremely long time.
The rapid refund, that is quickly replacing the standard paper filing, is an electronic method used for filing tax return, and allowing you to receive your refund in about 10-14 days. Much faster than the six weeks, it used to take. There are usually no excess fees attached to this type of filing, and returns may be filed for free through many local, public access facilities.
The refund anticipation loan, however, is a little different. These must be administered by a tax professional by means of an established alliance with a financial and lending institution.
There are several excellent choices available, and many qualified tax professionals to complete your tax return, you will however be required to pay a loan fee or a small interest fee for the opportunity to obtain an anticipation loan. There are several restrictions placed on receiving a refund anticipation loan, and some of the restrictions may affect many people.
The refund anticipation loan can be processed in as little as 3 hours, and back in the hand of the taxpayer by late afternoon; this is provided everything work exactly as planned.
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