Why getting a Tax Refund Anticipation Loan is a Bad Idea

Why getting a Tax Refund Anticipation Loan is a Bad Idea

The tax anticipation refund loan is basically a method by which a tax filer can receive his refund back immediately. So basically in this the consumer is guided by the tax preparation entity through filing ones taxes. The amount which has to be refunded is determined and then the individual is offered the refunded cash instantly. Although here they will be deducting some amount of fees. And in return when the refunded cash is issued by the Internal Revenue Service the company gets to keep it.

Who are the main targets of the refund anticipation loans and why?

Now these RALs are in no case considered a wise decision in financial aspects. Also since they generally aim to find people with lower income individuals and families, these types of loans are often seen as predatory.

There are some really strong reasons because of which RALs target such people.

Now people who have low income brackets are often found dealing cash flow issues.  Here the tax refund is then seen as a great chance to avoid those issues for quite some time

The second reason is that since the IRS tax refunds can be most quickly obtained though the direct deposits, but in most cases lower incomes do not have one. Here the RAL allows them to be able to receive their cash in just a couple of days.

Why is it considered a bad idea?

There are several reasons for considering tax refund anticipations loans to be a bad idea. Some of these important reasons are as follows-

  1. The high demand of the loan- one of the most common reasons why people consider it as a bad loan is because this loan demands a price.  The cost is so high that it may cost nearly about thirty percent of the total which also depends on the time which the lender may take to receive the refund of yours.
  2. Chances of tax fraud are high- this is yet another obvious reason which can’t be ignored for sure. The compensation that your RAL provider will have is directly dependent on the amount of your refund. Now when your are completely dependent on you’re the person who is preparing your tax unconsciously you are giving him more chances to find tax deductions that which is allowed by the laws. You are also giving them the opportunity to make more risks on your returns. Here some deduction may even lead to an increased risk of IRS tax audit.
  1. It is a clear indication of some serious problems– generally people getting themselves into the trap of RALs are the ones who are so desperate to get their tax refunds that they end up paying approx thirty to fifty percent interest so that they can receive the cash immediately. It is an indication that your mind is not stable and that you need to relax a bit and take it all easy.  You need to make a proper budget first and find out the reason that has given you debts. After resolving these issues who may save you from getting into trouble.

Conclusion

Thus the tax refund anticipation loans are considered a bad idea and there is no doubt in it. Although some tax payers believe that it is the only way out from their miserable financial situation but RALs wouldn’t do much better anyways! So it is advised to thinks of some other ways than this one.

2 Responses to Why getting a Tax Refund Anticipation Loan is a Bad Idea

  1. Yes, I agree that tax refund anticipation loans do sound like a bad idea. This post can help a lot of people make better decisions regarding getting this kind of loan. Consulting with a tax accountant about this would be a wise decision as well.

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