A Refund Anticipation Loan (RAL) is one in which the short-term loan is secured by the taxpayers expected tax refund and is structured so as to give customers who are waiting for their tax refund quicker access to the same. These can be an alternative to payday loans; however RAL’s have also come under criticism for charging very high interest rates in the form of fees.

• In the US, taxpayers usually apply for a refund anticipation loan by the use of a paid specialized tax preparation service, where a fee is usually charged for the groundwork of the tax return. In the United States the Internal Revenue Service regulations forbid basing this fee on the sum of the anticipated refund. An added fee is generally charged by the service for creating a bank product and creating a short-term bank account. By rule this fee should be the same on both loan and non-loan bank products, and in 2004 the typical fee was thirty tow dollars.
• RALs began with the IRS’s introduction of electronic filing in the mid 1980s as a way to decrease its cost of operation. A tax preparer would, inside twenty four hours of submission, obtain from the Internal Revenue Service verification that the submission had no numerical errors, and that the filer had no liens or aberrant federal student loans. This subsequently meant that there was excellent possibility that the IRS would disburse the refund inside weeks, except for deceitful income reporting. At that point in time the preparer would give the filer a check for the sum of the anticipated refund less a commission.
• In the early years of the 1990’s, misuse of the system started; filers did not correctly report their earnings to increase their refund. Subsequently, and moreover to put off filers from this somewhat extravagant proposal, in 1994 the Internal Revenue Service stopped offering tax preparers a verification that a deposit would take place for a specified amount and that it would start sending refunds directly to taxpayers instead of sending them to banks that made the loan, but not having the wanted results, the confirmations were re-instated the next year.
• According to some experts and expert bodies, these loans are controversial because just like payday loans and title loans, these are high profit yielding and low risk loans for which the target market is the people from low-income groups. A study conducted in 2006 by the NCLC and the Consumer Federation of America discovered that “Based upon the prices for RALs in 2006, a customer can anticipate paying approximately a hundred dollars in order to obtain a Refund Anticipation Loan for the typical refund of approximately $2,150 from a commercial tax preparation chain this year.”
• Even though these loans may extort money from poor people these may be a better choice compared to payday loans which have come under much more criticism compared to RAL loans. However other options such as title loans and borrowing money from friends and family cannot be a bad idea if there are no other options left instead of opting for such costly loan products.

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