How does Tax Refund Anticipation Loan (RAL) work

First, What Is RAL (Tax Refund Anticipation Loan)?

In the realm of financial services, there is a unique form of loan known as the Tax Refund Anticipation Loan (RAL). This specialized loan is provided by a third-party entity and is based on the borrower’s projected income tax refund.

A third-party financial services company provides a tax refund anticipation loan caters to individuals who can confirm their eligibility for a tax refund. The loans, typically used to address immediate monetary requirements, are usually of limited value.

The Mechanism of Tax Refund Anticipation Loan (RAL)?

Explaining the Mechanism of a Tax Refund Anticipation Loan (RAL), as taxpayers submit their annual income tax returns, they may discover that they qualify for a tax refund. Currently, it is common for taxpayers in the United States to receive income tax refunds. These refunds result from the excess amount of income tax paid to the state or federal government throughout the previous year, often through paycheck withholding.

When it comes to refunding taxpayers, the U.S. Department of Treasury offers various options. Depending on the individual’s preference, these options include issuing government checks, U.S. savings bonds, or direct deposits into the taxpayer’s bank account.

Tax Refund Anticipation Loan RAL

Typically, most taxpayers can expect to receive their tax refunds from the IRS (Internal Revenue Service) within a few weeks after filing their annual tax return. Opting for direct deposit remains the swiftest way for taxpayers to obtain refunds.

In today’s fast-paced world, taxpayers are constantly seeking ways to expedite the process of receiving their money. One convenient option that has gained popularity is the tax refund anticipation loan (RAL). Unlike traditional methods, the U.S. Treasury or the IRS does not facilitate these loans. Instead, they are made available by independent companies, each with their unique interest rates and fees. This type of loan is particularly attractive to certain individuals who anticipate receiving tax refunds of smaller amounts, typically in the range of a few thousand US. dollars or less.

The Good and The Bad of a Tax Refund Anticipation Loan (RAL)

Let’s explore the Pros and Cons of a Tax Refund Anticipation Loan. By opting for a tax refund anticipation loan, individuals can swiftly secure a specific amount of funds in anticipation of their projected tax refund.

Given that most taxpayers receive their refunds from the government shortly after filing their tax returns, it only makes financial sense to borrow that money if there is an urgent need for the funds.

Refund anticipation loans can quickly become costly due to their short-term nature when it comes to borrowing. Although the interest rates on these loans may appear low, typically ranging between 3% to 5% of the refund amount, additional fees and charges significantly raise the overall expense.

When it comes to tax refunds, individuals often have differing perspectives. Some may see it as a portion of their savings or an additional source of income. Yet, it is essential to recognize that the size of one’s refund indicates the amount of tax-free loan they have unintentionally provided to the government throughout the preceding year.

In order to explore different options, individuals can consider the possibility of modifying their federal and state tax withholding. This would involve employers withholding an appropriate amount from their paychecks to cover their anticipated tax responsibilities for the year. The aim is to avoid overestimating the withholding amount and consequently receiving a substantial tax refund.

Individuals can secure a brighter future by taking proactive measures and showing financial restraint by setting aside their additional income. With these accumulated funds readily available, the necessity of resorting to tax refund anticipation loans becomes obsolete.

What are the alternatives to RAL (Tax Refund Anticipation Loans)?

If you are looking for alternatives to tax refund anticipation loans, consider utilizing credit cards as a solution for immediate cash requirements. However, it’s crucial to be mindful of the potential expenses associated with carrying a balance unless you can capitalize on the introductory periods of 0% APR offered when initially establishing your credit account.

Consider alternative loan options aside from secured personal loans, such as unsecured personal loans, which can provide loan amounts exceeding $10,000. These loans typically offer reasonable interest rates, particularly for individuals with good credit. On the other hand, it is important to note that secured personal loans, like title loans, come with exorbitantly high-interest rates that frequently lead borrowers into a cycle of debt or even the potential loss of their vehicle’s title.


Anticipating a tax refund has become a common practice among taxpayers. Typically, individuals receive their refunds within a few weeks after submitting their tax returns to the IRS. However, a tax refund anticipation loan (RAL) is an alternative option for those seeking a faster route to their money. 

RALs are offered by third-party companies, allowing taxpayers to access their funds more quickly. It is important to note that these loans come with additional fees and charges, making them a costly choice for individuals eagerly awaiting their refunds.

Find your dedicated Tax Professional when filing your RAL, Tax Refund Anticipation Loan. RapidTax free Tax Professionals will walk you through from start to finish to maximize your chances in receiving your RAL as soon as possible.

RAL: Refund Anticipation Loan

For quite some time, commercial tax preparers have been providing what is known as a refund anticipation loan (RAL) to taxpayers for the purpose of providing them with their refund check quickly–usually within one or two days. The RAL requires consumers to make up-front payments in the form of interest. Many of these people also received the Earned Income Tax Credit (EITC).

In 2010, the Internal Revenue Service voiced its decision to discontinue the “debt indicator” service; this had been a tool utilized by tax preparers to determine whether or not a taxpayer’s refund would be used towards paying any outstanding debts such as back taxes, child support and/or student loan fees.

Subsequently, several banking institutions stopped offering RALs, and in response to this trend, federal banking regulators mandated the termination of their issuance. These so-called “unsafe or unsound” loans could not be repaid from tax refunds utilized to cover other financial obligations.

The National Consumer Law Center and the Consumer Federation of America found that every year, up to $1 billion was taken from the tax refunds of over 10 million individuals in fees associated with RAL loans. In 2013, 100,000 Americans applied for a Refund Anticipation Loan (RAL), yet by 2014, this number had plummeted by over half.

RapidTax free dedicated Tax Professionals will walk you though the RAL filing process from start to finish to maximize your chances of getting your RAL issued as soon as possible.

Refund Anticipation Loan

Substitute RALs

No longer offered by banks, Refund Anticipation Loans (RALs) remain an option for certain lower-income taxpayers at tax time. Although financial institutions originally provided these loans, some tax preparers have turned to alternative lenders, such as payday lenders in order to furnish them instead. Although various tax return options can be marketed as alternatives to Refund Anticipation Loans (RALs), these products often incur higher fees than RALs. An increasingly appealing option, however, is filing for an early refund with paystub information instead of waiting on W-2 documents.

Following the introduction of refund delays in 2017, another type of RAL became more prevalent. Known as “no-fee” RALs, they are typically provided by paid preparers – although the various fees associated with them aren’t usually made known at first.

Compared to other credit options, Refund Anticipation Loan (RALs) offer a less risky option for tax filers since they are not mandated to repay the loan if their actual refund does not match the amount predicted by their preparer. Last year, research conducted by the National Consumer Law Center revealed that over 1.6 million no fee RAL were distributed.

Refund Anticipation Checks

As an alternative to refund anticipation loans (RALs), a growing number of tax preparers are turning to refund anticipation checks (RACs). Although these present less risk to the preparer, they can be costly for the taxpayer, with higher fees associated. With RACs, the IRS is able to directly transfer a tax filer’s refund into a temporary bank account opened by the tax preparer.

Prior to the taxpayer obtaining their refund, fees for tax preparation as well as RACs are deducted. Generally, federal refunds charge between $25-$60 in RAC charges, and state refunds cost $10 (with possible extra check-cashing fees).

In 2015, nearly 20 million taxpayers – most of whom claimed the Earned Income Tax Credit (EITC) – received a Refund Anticipation Check at an expenditure of about $475 million. This was higher than 2011’s figure of 18.4 million and 2009’s 12.9 million taxpayers. Alarmingly, the rate of RAC usage is not reduced, even though free tax programs can grant refunds within the same timeframe via direct deposit.

State Regulations for Refund Anticipation Loans

In comparison with federal regulations, certain states have enforced more substantial standards for refund anticipation loans (RALs). For example, many states have barred tax preparers from charging additional fees only to those individuals taking out RALs or RACs and specified the kinds of companies allowed to offer these advances. Moreover, when states imposed limits on the high APR that usually surpasses 100 percent for RALs, lawsuits were brought up against them.

In 2008, the Attorneys General of California and New Jersey took legal action against tax preparers for their deceptive advertising practices concerning Refund Anticipation Loans. According to the National Consumer Law Center, this was not an isolated incident; states across the nation have implemented regulations surrounding RALs and are enforcing them through similar court proceedings.

In 2010, the New York State Division of Human Rights brought suit against certain tax preparers for discriminatory targeting. As a result, Maryland, Colorado, and Louisiana all implemented RAL legislation that same year. Maryland’s law prohibited most additional fees associated with RALs, while both Colorado and Louisiana increased disclosure standards related to the applications.

20 States Currently Regulating RALs:

  • Arkansas
  • California
  • Colorado
  • Connecticut
  • Illinois
  • Louisiana
  • Maine
  • Maryland
  • Michigan
  • Minnesota
  • Nevada
  • New Jersey
  • New York
  • North Carolina
  • Oregon
  • Tennessee
  • Texas
  • Virginia
  • Washington State
  • Wisconsin

E-file your 2020 Tax Return on February 12, 2021!

tax season 2021

The IRS has delayed the tax season until Feb. 12 due to COVID-19.

They will begin accepting e-filed returns for tax season 2021 on this date due to testing the IRS systems. This is also to ensure eligible taxpayers receive the Recovery Rebate Credit for their remaining stimulus payments.

Here’s what to expect this filing season.

Tax Refunds

Continue reading “E-file your 2020 Tax Return on February 12, 2021!”