Is a Refund Anticipation Loan worth it?

Some people filed their 2018 taxes as soon as they got their W2s. Then they head to the mailbox every day, hoping this is the day their refund check arrives.

Other folks though, choose not to wait and instead get a refund anticipation loan, or RAL, a loan based on what they expect to receive from Uncle Sam that is repaid when they get their refund.

Is an RAL a lifesaver?

“Taking short-term loans against tax refunds is not the most prudent practice. The short-term costs can be quite high, so unless you are in a serious bind, avoid it,” says Alex Shvarts, founder of FundKite, a Manhattan company that provides funding for small businesses.

If you still want such a loan, just know that you could be charged a higher-than-typical average interest rate. And you want to be leery of scammers.

“Not all RALs are scams, but the lenders behind them often use unfair practices to target the poor," warns Joshua Zimmelman, president of Westwood Tax & Consulting in Rockville Centre.

"Some lenders might persuade people to take out an RAL by convincing them that their refund is going to take longer to arrive than is true,” he added.

Know what you’re getting into

“Sometimes people don’t realize they’re taking out a loan at all and think it’s an advance on their refund, only to be surprised by high interest fees later on,” says Zimmelman.

What’s the rush? Many taxpayers, especially those e-filing, will receive their refunds relatively quickly. Says Zimmelman, “If you do decide to sign up for an RAL, make sure the lender provides you with all the information on fees and interest rates, and that they are appropriate and worth it.”