What Type of Borrower Will a Refund Anticipation Loan Help?

A refund anticipation loan (RAL) is money borrowed from a bank or lending company that is secured by a borrower's expected tax refund.

A borrower who needs money quickly will benefit from a refund anticipation loan because the loan can be obtained in less time than it takes for a tax refund to be issued. Borrower's who face emergencies, such as sudden medical costs, are the usual recipients of refund anticipation loans. Low-income borrowers can benefit from the fast cash of a refund anticipation loan, but they must be aware that interest rates are high and, as a result, can lower the total amount of cash received.

Although refund anticipation loans are traditionally appealing to lower-income individuals who need cash fast, higher-income individuals with poor cash flow could benefit from an RAL as well. A high short-term interest rate will not be detrimental to a higher-income individual's bank account. He or she can easily make the payments and still receive a lump sum of cash in roughly two business days.

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