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Refund Anticipation Loans

Is it really possible to pay 1000% interest?

Sadly, yes. A small Refund Anticipation Loan (RAL) could easily cost that much . . . or more.

Even in the best case, the effective annual interest rate is about 41%. That's more than the outrageous rates some credit card companies charge.

So it's no surprise the IRS is considering rules restricting the marketing of RALs and similar products. They're also concerned that some preparers may claim improper credits or deductions to inflate refunds. (Bigger refunds, bigger RAL fees.)

It's also no surprise that a major tax preparation company recently paid almost $5 million to settle a California lawsuit alleging deceptive marketing of RALs as early tax refunds.

Make no mistake: RALs and other so-called "value added products" are quite lucrative for tax preparers. So why doesn't Hamilton offer them?

Simple. They're not in your best interest.

Here's how an RAL works: The preparer arranges a bank loan based on your anticipated refund. You get the money in 1-2 days; the bank gets repaid by the IRS in 8-15 days. (You won't get the loan without e-filing and authorizing the IRS to pay the bank directly.)

But wait . . . Couldn't the IRS just deposit the refund in your bank account in 8-15 days, with no RAL fees?

Sure. Just e-file and ask for direct deposit.

If you're due a refund, it means you've loaned your money to Uncle Sam for a year. You've lived without it for that long; do you really need to pay a huge fee to get it back a few days faster?

According to one prominent tax chain, you'll pay $52.09 to $157.23, depending on the size of the loan. That includes:

  • Refund account fee: $29.95
  • Refund check fee: $20.00
  • Finance charge: about 1.07% of loan amount

See sidebar for how to calculate the annual interest rate.

And then let Hamilton prepare your tax return—quickly, accurately, and less expensively. E-filing and direct deposit are free.