Refund Advance Loans And Refund Anticipation Checks 101

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Are you counting on your tax refund to pay off bills? You may need the cash before your refund arrives.

The IRS website states that typical refunds take less than 21 calendar days if you e-filed your return. However, if you are claiming the Earned Income Tax Credit (EITC) or the Additional Child Tax Credit (ACTC) your refund may be delayed further.

Tax preparers may offer a solution in the form of refund advance loans (RALs) and refund anticipation checks (RACs). What’s the difference between the two, and is either one right for you?

Refund advance loans are just what they sound like – a loan issued by a lender for the amount of your anticipated tax refund. You are loaned the money up front and your refund is used against the loan balance.

Predatory, older-style RALs were basically eliminated by rule changes in 2010 and 2012 due to high interest rates and other charge…

Interest Rate Acronyms

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APR and APY – are they new texting acronyms? IDK, you say – or rather, you text? (For the benefit of the textually-challenged, IDK means “I don’t know.”) If you think they are texting acronyms, or just “DK” what they are, it’s time to learn.

APR and APY are financial acronyms, short for Annual Percentage Rate and Annual Percentage Yield, respectively. Both are interest rates, but they have a significant difference. APR does not address how interest is compounded – the default is the interest that you earn if you are depositing money, or pay if you are borrowing it – in one year. APY takes into account how often the interest is compounded.

If interest is compounded once per year, there is no difference between APR and APY – interest is added all at one time. However, let’s assume an interest rate is compounded monthly. In that case, the interest payment is divided up into twelve equal increments.

If you are earning interest on a deposit, that adds a sma…