Sunday, May 13, 2012

The Advantages And Disadvantages Of Refund Anticipation Loans

Advantages:

1. Instant Cash
If you are low on cash and cannot wait for your refund to pay off some bills, a refund anticipation loan could certainly fill that role. While cash advances on a paycheck could pay for small bills that are due very soon, if you have a larger sum to pay off and no other way to do so, a refund advance loan could be very helpful.

2. Short Processing
As opposed to other large loans, a refund anticipation loan has a short application and approval process. Normally processing will take no more than a day, and the loan can be distributed within 24-48 hours. In comparison, traditional loans can take weeks to be approved and distributed.

3. No Tax Prep Fees
Usually if you decide to get a refund anticipation loan the tax preparer will deduct the cost of their services from your refund. This can be a great option for those who might not otherwise be able to afford the fees associated with professional tax preparation.

Disadvantages:

1. Interest and Fees
Unfortunately, the interest ad fees associated with these types of loans can be quite high. This is mostly due to the fact that the loan itself does not come from the preparers handling your taxes. Although you typically apply for and receive the loan through at a tax preparer's office, they almost always outsource to third party lending banks.

2. Payment Responsibility
Like with any loan, you are ultimately responsible for repaying the bank for the money they lent you. Therefore, if for any reason the lending bank does not receive the amount the full amount of your refund from the IRS then you will be held responsible for the difference.

3. Lack of Loan Education
Unfortunately, hundreds of people take advantage of refund anticipation loans every year without fully understanding their options. As with any major financial transaction you always want to carefully consider the pros and cons before making a decision, and when it comes to refund anticipation loans if you do not need the funds right away then you would probably be better off waiting for a check from the IRS.

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