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2005 Tax Season
RAL
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Beware of the Tax
Refund Loan
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At the beginning of
every tax season, consumer groups beg taxpayers not to
sign up for Refund Anticipation Loans,
or RALs. |
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R.A.L. |
RAL
is a short-term loan backed by a tax refund that is
a bad deal because of all the fees involved.
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TIMING |
Be
patient. File your taxes electronically, have your
refund directly deposited into your bank account and
it should take just two weeks.
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MEDIA |
TV
commercials add to the hype: one such commercial
shows a taxpayer with his refund in his pocket
before he can ask for it!
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COST |
In 2005, a
RAL will cost about $100
in fees for the average refund of
$2,050. New
figures released show that RALs brought in
over $1
billion in loan fees, from more than 12 MM
American taxpayers in
2003. We will pay a fee of
$2.00 to
withdraw $20 (10%)
because we don’t plan well enough to use our
own ATM.
The loan fee for a RAL is in addition to the
tax preparation fees averaging
$120 and,
in some cases, an administrative fee of about
$30. A loan
under those terms bears an effective APR of
about 187% (247%
if administrative fees are charged and included in
the APR). Tax preparers and their partners also
offer an “instant” same-day RAL for an extra
$20 to
$39.
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INSTANT GRATIFICATION
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We tell ourselves that these
“convenience” fees are worth it because they save us
time. But, folks, we are nickel-and-diming away our
hard-earned money because we are so
impatient. To some, that
$100 loan fee
may seem worth it because they don’t have to wait
for their refund. But that
$100 could pay
two months of an average cable TV bill.
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WHO LOSES |
RALs affect mostly low and
moderate income consumers, people who can least
afford to waste money. The IRS reports that
79 percent of
RAL recipients in 2003
had adjusted gross incomes of
$35,000 or less.
The NCLC and CFA report also found racial
disparities in RAL usage:
28% percent of
Black and 21% of
Latino taxpayers responded that they’d received
RALs with only 17%
usage by White consumers.
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Abigail Adams, the wife of
President John Adams, said that “great difficulties may
be surmounted by patience and perseverance”.
So, don’t be so impatient that you
end up wasting money, especially on a RAL. |
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