Hosed by SBBT

[Lion EA]

They can get their taxes done now while they have no money, get their refund in the pipeline now, and pay you out of their refund. Otherwise, they wait until they save the money for your fee. They are trading money for time according to the value they put on it for them. It also allows them to be on the DD timeline which is a week faster plus mail time than the mailed check timeline even when they have no bank account of their own. If they have no bank account for DD and no credit card to pay you, it might be worth it to them to use a RT. I don't do them myself, but you have to think about your own client pool and their needs.

[JohnH]

So using the examples for the RAL fees vs refund amount, it looks like it would break down like this:

Flat Per Cent of Refund paid in fees:

1) $ 500 refund - 19.6%

2) $ 1,000 refund - 15.6%

3) $ 2,000 refund - 9.4%

4) $ 4,000 refund - 4.7%

Being very generous with the time frames, if we assume that the RAL facilitates the taxpayer getting their money one month earlier that by using normal filing, that means they are paying the above percentage times 12 when expresing it as an APR. So the amount actually being paid expressed as an APR is:

1) $ 500 refund - 235% APR

2) $ 1,000 refund - 187% APR

3) $ 2,000 refund - 113% APR

4) $ 4,000 refund - 56% APR

So while it's a horrible effective APR, I can see how some taxpayers might opt for the RAL since the actual raw dollar amount is relatively small in relation to the refund (at least once the refund gets over $1,000 or so). Maybe they don't have a checking account and would have to pay this much or more at a check cashing service once the IRS check arrives. Or maybe they worry about the IRS check being stolen from their mail box and facing 6-12 months to get a replacement. Or maybe they need to pay something(rent, car payment, tuition, etc)by next week or face an eviction, foreclosure, repossession, etc.

Fortunately this isn't my situation as I sit here today, but there have been times in my (younger) life when I'd have gladly forked over $188 to get my hands on $3K or $4K that somebody owed me, rather than have to wait 4-5 weeks for it even though I knew it was on the way. So I'm not going to say that someone getting a RAL is stupid or foolish, even though I'd recommend against it as a matter of prudent financial management.

Thanks for providing those numbers for comparison. If I've missed something in the math I'd appreciate someone correcting me. At least we have a little better perspective on the actual impact of the RAL in actual dollars and in terms of relative APR.

[jasdlm]

Thanks, Lion. You provided a very clear explanation, and I appreciate it!

[Booger]

So using the examples for the RAL fees vs refund amount, it looks like it would break down like this:

Flat Per Cent of Refund paid in fees:

1) $ 500 refund - 19.6%

2) $ 1,000 refund - 15.6%

3) $ 2,000 refund - 9.4%

4) $ 4,000 refund - 4.7%

Being very generous with the time frames, if we assume that the RAL facilitates the taxpayer getting their money one month earlier that by using normal filing, that means they are paying the above percentage times 12 when expresing it as an APR. So the amount actually being paid expressed as an APR is:

1) $ 500 refund - 235% APR

2) $ 1,000 refund - 187% APR

3) $ 2,000 refund - 113% APR

4) $ 4,000 refund - 56% APR

So while it's a horrible effective APR, I can see how some taxpayers might opt for the RAL since the actual raw dollar amount is relatively small in relation to the refund (at least once the refund gets over $1,000 or so). Maybe they don't have a checking account and would have to pay this much or more at a check cashing service once the IRS check arrives. Or maybe they worry about the IRS check being stolen from their mail box and facing 6-12 months to get a replacement. Or maybe they need to pay something(rent, car payment, tuition, etc)by next week or face an eviction, foreclosure, repossession, etc.

Fortunately this isn't my situation as I sit here today, but there have been times in my (younger) life when I'd have gladly forked over $188 to get my hands on $3K or $4K that somebody owed me, rather than have to wait 4-5 weeks for it even though I knew it was on the way. So I'm not going to say that someone getting a RAL is stupid or foolish, even though I'd recommend against it as a matter of prudent financial management.

Thanks for providing those numbers for comparison. If I've missed something in the math I'd appreciate someone correcting me. At least we have a little better perspective on the actual impact of the RAL in actual dollars and in terms of relative APR.

JohnH, this is what I meant by my flippant "loan shark" answer. The APR's are staggering.

Booger

[spstax]

Are you seeing Republic Bank loan on EIC? I just talked with Chase, this is our first time doing RAL in the past only RT, they said if the EIC is over half of the refund they will be denied. Had two clients, both working parents with some withholding and EIC. Both were denied because of the amount EIC to the total refund. Does Republic work the same way?

[Chowdahead]

They can get their taxes done now while they have no money, get their refund in the pipeline now, and pay you out of their refund. Otherwise, they wait until they save the money for your fee. They are trading money for time according to the value they put on it for them. It also allows them to be on the DD timeline which is a week faster plus mail time than the mailed check timeline even when they have no bank account of their own. If they have no bank account for DD and no credit card to pay you, it might be worth it to them to use a RT. I don't do them myself, but you have to think about your own client pool and their needs.

This is a very good answer. Hit the nail on the head!