What Can Disqualify You for a Refund Anticipation Loan?

You can get your refund check today using a refund anticipation loan (RAL) and pay for the origination fees with your refund, too. However, this is a very expensive way to borrow, and you might not qualify for this service. Only a few tax preparation firms offer RALs, and there is no guarantee you qualify for one.

The Firm

In general, only tax preparation firms offer RALs and only if you use the company's tax preparation service. Unless the tax office also has backing from a bank to issue loans, you cannot get one. In 2010, Jackson-Hewitt, one of the leading tax preparation firms in the U.S. and issuer of thousands of RALs, lost its funding, so it does not offer them, according to Rachel Ochman of SmartMoney. H&R Block does not plan to offer RALs in 2012 either.

Your Refund

Because a refund anticipation loan is actually an advance on your tax refund, the IRS must owe you money for a tax firm to approve your application. If you are self employed and underpaid your taxes throughout the year, for instance, you will owe the IRS, so you have nothing to use as collateral for an anticipation check. Also, even if you have a refund for thousands of dollars, most firms limit anticipation loans to a few thousand dollars.

Misconception

In 2010, the IRS stopped updating a status code that indicated the taxpayer's refund check would be offset. Tax preparation firms often used this "debt indicator" code in lieu of a credit check. Thus, owing money to the IRS or any other creditor that qualifies for a refund offset, such as non-tax debts and unpaid child support, probably won't affect your ability to get a loan unless the firm requires a credit check. However, you have to pay the refund back regardless of the size of your actual refund.

Considerations

The effective interest rate on RALs can exceed 500 percent, and you can receive your refund within a few weeks by using the IRS's electronic filing system called "E-File," and depositing your refund directly into your bank account, according to the IRS website. Also, choose your tax preparer wisely. A 2008 U.S. Treasury study found that 17 out of 28 licensed tax preparers made a mistake on a customer's return. Instead of taking a short-term loan on your tax refund, you could use a credit card or home equity line of credit and pay it back once you receive your refund.

References

• SmartMoney; Refund Anticipation Loans: Jackson Hewitt Swoops In; Rachel Ochman; January 2011
• Wisconsin Department of Revenue: Refund Anticipation Loans (RALs)
• "The Wall Street Journal"; H&R Block Won't Offer Refund-Backed Loans in 2012; September 2011
• Internal Revenue Service: RALs and Other Financial Products
• U.S. Treasury Department; Most Tax Returns Prepared by a Limited Sample of Unenrolled Preparers Contained Significant Errors; September 2008