What is a Refund Anticipation Loan?

A refund anticipation loan (RAL) is money borrowed from a bank or lender that is in anticipation of a borrower's income tax refund from the government. The loan is equal to less than the expected refund because the borrower must also pay processing fees and interest.   

Refund anticipation loans carry high interest rates because they are high risks to lenders.  There is no guarantee that a borrower will actually receive the amount of money that he or she expects to receive as a refund. If the borrower filed his or her taxes wrong or made an error in calculation, he or she could have over-estimated the refund and could easily obtain a loan higher than the actual amount of money that he or she will receive to pay back the loan.

Refund anticipation loans are advantageous to people who need money quickly, especially for those who face emergencies. The loans are usually short-term because they can only be issued between the time that a person files his or her income taxes and the time that he or she receives the refund. This period is usually lasts only a few weeks and once a person receives his or her income tax refund, the loan is paid back.


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