Tuesday, August 11, 2020

Advice on Using a Refund Anticipation Loan during a Financial Emergency

Tax refunds help millions of Americans each year financially. Filing an accurate paper tax return, which we do not recommend, should yieldits appearance in six to eight weeks from the date the IRS received your file.   For the recommended way to file a tax return, which is electronically, you will receive the tax refund in typically 3 weeks.  There are additional factors that may effect this amount of time as well, however if you are waiting on a tax refund and have a financial problem that needs to be taken care of using your tax refund, this time can seem like an eternity, and this problem may grow significantly worse if it isn’t taken care of in a timely manner!  That is why a solution has been created for this situation, and it is called a tax refund anticipation loan or tax refund loan.

What exactly is a refund anticipation loan or tax refund loan?

A refund anticipation loan (RAL) is a loan provided by lenders that are backed by the anticipated federal income tax refund you will be receiving in the future.  The process for acquiring these loans is quite straightforward, as the lender loans the amount needed plus any charges and interest rate expenses. The amount borrowed is then paid back later using the tax refund received.

What are the costs associated with tax refund loans?

These costs typically vary from one lender to another, but the one constant with all RAL’s is a high interest rate.  However, is a RAL is used correctly, and paid back on time, it is a tool that can save you significant money, time, and energy!  This is because RAL’s are short-term solutions for financial emergencies!  Finding the exact costs, can be found when you apply for this product.

Here are some of the most important things to consider with getting a RAL

Here are some of the most important things to know and consider when looking to get a RAL.   The top things that need to be considered include:
  1. Interest: the interest expense is likely to form the cost of getting a refund anticipation loan.  Most of these loans carry large interest rates, but are paid back in a quick timeframe, so the cost can be significantly less than letting the financial emergency, that these loans are usually gotten for, grow.
  2. Requirements: There are a few requirements when getting this product which include:
    1. Being a U.S. Citizen
    1. Be at least 18 Years of Age
    1. Have a Bank Checking Account
    1. Be Receiving Future Income i.e. Your Tax Refund
  3. Finding the best place to get a tax refund loan: Looking online or working with your tax preparer when getting a tax refund advance is the best way to go about finding the best option for it.  The most recommended online provider is tax refund loans.

Final thoughts and conclusion about tax refund anticipation loans

All in all, a RAL can be a very helpful tool during a financial emergency as a last resort.  However, there are many other options that you should consider first that can save you money.  For example, asking friends or family for help or a loan, using a credit card, and tapping into an emergency fund are some options you should try before getting a tax refund advance.  So if you have a financial emergency, and there are no other options, a RAL can be a great financial tool!