Faster cash, with high interest rates
In recent years people have used electronic methods known as
e-filing to complete their federal income taxes and have often
obtained refunds in two weeks or less.
Faster cash, with high interest rates
In recent years people have used electronic methods known as e-filing to complete their federal income taxes and have often obtained refunds in two weeks or less.
New options allow customers to get access to money even faster than e-filing through loans. These loans are known as refund anticipation loans or RALs. RALs include both processing fees and an interest charge.
Many tax preparation places offer RALs, which allow customers to get their money in one or two days instead of a couple weeks. Additionally, instant RALs, which are known by different names depending on which bank handles the loans, may also be available to allow customers to get their money the same day.
Mercedes Capillo, a tax accountant and owner of Hollister’s Tax Preparation & Services, has offered such products to Hollister customers for several years to be competitive, she said.
Her company offers a RAL, with the money available within 24 hours, and an advanced RAL, with money available in minutes, Capillo said.
Roughly 15% of all filers from last year used either an advanced RAL or a one-to-two day RAL, she said.
“It’s for someone who really needs the money,” Capillo said. “If it’s urgent, then it’s the best [way]. “It’s an expensive way of getting a refund.”
If they can wait, it’s much cheaper to use an e-file system, she said. Most e-file systems also charge, but it is a much smaller fee such as $19.95 through some programs such as Turbo Tax.
Maxine Gatto, a Licensed Tax Preparer and owner of The Financial Review in Hollister, said that 1 percent of her customers apply for the advanced loan, or NowRAL, and 3 percent apply for the RALs.
The NowRAL can get clients money in under an hour. However, the maximum amount of money given instantly is $1800.
For clients with bigger refunds, they can receive the additional money in one to two days.
The refund anticipation loans don’t come cheap, though. On a $3500 refund (a refund amount due to a recent applicant) people pay up to $166 with bank fees and interest.
The finance charge represents a 166% annual interest rate, Gatto said, much higher than the average interest rate on a house loan.
“So you’re only getting the $1800 right away, and paying $166 to get that money now,” Gatto said.
As companies offering RALs use different banks to process them, the same-day RALs may be harder to obtain at some places than others.
Although she has offered RALs and same day NowRALs for three years, so far, not a single client has qualified for the NowRAL, Gatto said.
Obtaining a NowRAL is based on specific conditions, including having a good credit history, she said. Other requirements include:
– Minimum refund amount of $3,500
– Taxpayer’s W-2 earnings must be at least $10,000
– Tax return cannot contain a Schedule C, E, or F
– All listed dependents must be children of the taxpayer
– Taxpayer’s prior year history must be on file at Republic Bank
– Taxpayer must be currently employed
– Taxpayer must sign the application in the presence of the ERO (Power of Attorney is not eligible)
– Taxpayer must not have already filed a return for the current year
In addition, Republic Bank will obtain a credit report on all NowRAL applicants in order to identify any outstanding government or child support obligation, Gatto said.
Clients who applied for the NowRAL, but do not get it are automatically entered into a program which checks their eligibility to qualify for a RAL, Gatto said.
“The people that need the money now usually don’t get it because they don’t meet the criteria,” she said.
“It’s sad these people need their money, they’re counting on getting it right away,” Gatto said. “They anticipate getting it right away. It’s a big disappointment when they are declined.”
Advertisements for instant RALs may mislead consumers as they often do not contain the criteria for acceptance, Gatto said.
It’s a responsibility for the tax preparer to let clients know their chances of being approved, she said.
Hollister residents seeking RALs will not find the option available at Bianchi, Lorincz, Huey, Hudson & Co LLP. The company will not do income tax refunds with RALs, said Certified Public Accountant and partner Bob Bianchi.
“Generally speaking the fees that they charge are outrageously high,” Bianchi said.
As an example, a $2000 RAL may have a $60 finance charge, he said.
This is a 112.881% annual interest rate, Bianchi said.
“Some banks make a lot of money doing [RALs],” he said.
“People look at it as a $60 fee,” he said, “They don’t really compare it as accountants might, to time use of money.”
People who file taxes electronically generally receive their money in 10 or fewer days from their initial filing date, he said.
“It amazes me that there are people who can’t wait 10 days to get their money,” Bianchi said. “If they can’t wait the 10 days, there are probably some other issues going on. Maybe they should go to credit counseling.”
Danielle Stolman can be reached at [email protected].
