Refund Anticipation Loans Ethical Analysis

Refund Anticipation Loans Ethical Analysis


At this moment in time, individuals who require capital will be searching at options to get the sum they need at the shortest possible time. Today, businesses will take this as an incentive to provide resources such as short-term loans. One of them is what we term the “Refund Anticipation Loan” (RAL). This form of short-term lending is now becoming a choice for certain Americans who are facing monetary difficulties. While this has been provided by several firms for years now, there are many worried customer activists who prevent consumers from patronising it, accusing tax services companies of excessive charging of fees. Despite the high fees associated with RAL, the bulk of those originating from impoverished backgrounds are those who typically apply for RAL. There is a continuing struggle between the administration, customer groups and tax preparers to avoid providing Refund Anticipation Loans.

Part I

Refund Anticipation Loans (RAL’s) Defined

A refund acceleration loan is a type of short-term loan used by a taxpayer who wants an early claim for his tax refund. The balance of the loan would be refunded by the tax refund required by the taxpayer. It can also be referred to as ‘Rapid Refund’ or ‘Instant Capital.’ A contract is created by a financial institution to be signed by a taxpayer which promises that the loan would be refunded by a taxpayer’s tax refund (‘Refund Anticipation Loan Fraud’).

According to the Center for Responsible Loan, common interest rates for RALs vary from 50% to more than 500 percent, depending on the amount of time needed to process the Internal Revenue Services (IRS) tax forms. While this type of loan has been claimed as a way for taxpayers to get their tax refunds early in their wallets, more often than not, it is just a few days or less in advance of the actual date on which the IRS issues the tax refund (“Tax Refund Resources for Consumers”).

RAL helps taxpayers to get their tax refund quicker and to be able to invest the money earlier than to wait a couple more days. Even so, problems occur anytime someone wants to utilise a prepayment loan. Basically, the lender assumes that the money borrowed will be repaid no matter what, so the guarantee is the taxpayer’s tax refund; thus, it is considered to be a stronger type of loan than the other types, yet risking something to get the money quicker seems not to sound nice at all (Pritchard). Refund Anticipation Loans reflect a refund of the taxpayer’s income tax. Many who want to take advantage of this can submit to banks or bonds, unless they may wait for the IRS to administer the tax refunds (“Advantages of Refund Anticipation Loan”).

Refund Anticipation Loans Ethical Analysis

Some Advantages of Refund Anticipation Loan

  • Speed

It would only take a few days for the lent money to enter the creditors’ hands. So for anyone who face some sort of disaster and are in urgent need, a refund anticipation loan is an effective remedy to their issues, instead of applying for weeks or months from the government (‘Advantages of a Refund Anticipation Loan’).

Works Cited:
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  • Center for Responsible Lending (CRL): CRL has been protecting consumers from abusive financial practices. The mission of this non-profit community development lender is to establish economic opportunity in undeserved communities through responsible financial services.