subject: Former Refund Anticipation Loan Consumers Turn to Cash Alternatives in 2011 [print this page] Former Refund Anticipation Loan Consumers Turn to Cash Alternatives in 2011
The near ten million taxpayers who have used Refund Anticipation Loans (RALs) to access their cash before actually receiving their IRS tax refund checks are turning to new alternatives in the face of a changing loan market.
Kicked off by the recent IRS policy change that ended the reporting of the "debt indicator" --an estimate of tax refund money that could be taken out of the taxpayer's refund for missed child support, traffic tickets, etc--., a domino effect took place in the RAL market. As a result of the IRS change, several banks, including those paired with some of the country's biggest RAL marketers, indicated they were no longer willing to fund the loans to the extent they had previously. The banks claimed the absence of the debt indicator had removed some of their protection in an already high risk market. Tax preparation services, who profit from the popular service, protested the banks' movement, with at least one preparer taking legal action against the bank itself.
What does all this mean for taxpayers?
At first glance, it appears that consumers of RALs will be faced with greater scarcity of loans, potentially higher prices and interest, more extensive credit checks, and almost certainly greater chances of being turned down for an RAL.
Fortunately for those in need of the money now (not the up to 6 weeks estimated by the IRS for issuing refunds), there are alternatives.
For future tax years, some people may benefit from having their withholding amount lowered. In some cases, a large return every year simply means that the formula being used to determine your withholding is incorrect for your circumstances. Careful consideration should be taken before making any changes, but despite the fact that people like getting an annual "big check" from the IRS, it is money they should have been accessing throughout the year and while the IRS has possession of it, no interest is being earned.For 2011, there are alternatives available for the cash strapped. You can apply for a payday loan as an alternative to an RAL and have an answer about your approval in a matter of hours. Payday loans are a source more people are turning to in emergencies, but until now they have not been thought of as a way to access the cash in a tax refund. You can benefit from the fact that you have a job with a steady income to encourage a lender to give you the cash you need- as much as $1000, depending on your lender and the laws governing your area. Simply have a plan in place to pay back what you have borrowed when your tax refund check arrives.
You and your lender will work out the terms of your loan and the date of repayment. Be sure you have included the price of the loan- that is, in interest and any additional fees that apply, when planning the loan's repayment.
If you consider your options carefully, you may find that a payday loan and possible next day access to your funds makes better sense than waiting on the IRS timetable. With new alternatives in 2011, the choice is yours.
