When expecting tax refunds, cash-strapped households might consider refund anticipation loans or RALs. However, Better Business Bureau warns filers that RALs come with risks.

Based on taxpayers’ expected tax refunds, these short-term loans typically target low-to-moderate income families who could benefit from immediate cash. RALs can carry annual percentage rates as high as 500 percent. In fact, these loans are so expensive that the Military Lending Act bans them for service members.

“With tax refunds, patience is a virtue,” says Robert W.G. Andrews, CEO of BBB serving Alaska, Oregon and Western Washington. “Waiting extra weeks for tax refunds can save consumers from ‘over borrowing,’ excessive fees and high interest rates.”

BBB encourages eager refundees to remember these points:

• RAL recipients are responsible for repaying the total loan amounts, even if tax returns are less than expected.
• Understanding the terms and conditions of RALs is critical. According to The Center for Responsible Lending, the average RAL APR in 2010 was 149 percent. Unexpected fees can cause serious financial damage.
• The Federal Deposit Insurance Corporation has forced all major national banks to discontinue these types of loans. Be wary of sketchy lenders, both online and off.

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