The Refund Anticipation Loan is a financial service designed to skim additional money off tax returns by appealing to the desire for instant gratification.

H&R Block - Receive up to the amount of your anticipated federal tax refund (minus bank and H&R Block fees) or a loan check on the spot after filing your (federal tax) return. Plus, your H&R Block tax preparation fees are paid out of the loan, so you pay nothing out-of-pocket.

Jackson Hewitt Definition - A Refund Anticipation Loans is a loan that is made available to qualified customers by a bank based upon several criteria, including the customer's anticipated tax refund. When you choose the Refund Anticipation Loan and are approved, there will be no out-of-pocket payment required because all fees will be withheld from the loan amount. The Refund Anticipation Loan is paid back with your refund.

What's wrong with it?
Nothing; these firms are offering a basic loan against an expected tax return. In a pinch, the loan might help pay overdue credit card bills or medical costs. But these loans are prohibitively expensive, and take advantage of those people who can least afford it. The cost comes out of the loan itself and offers instant payment, so many people take the loan because they want the money immediately. There are also many, many things that can go wrong and cost the taxpayer more money.

Some firms even combine the tax refund with a credit card, such as H&R Block. In many cases, a low-income individual uses the credit card to pay off interest on another credit card, loan, or bill, goes over the amount of the refund loan or cannot pay the new outstanding balance, and the cycle begins all over again.

Think about it this way: if you or another borrower had to pay the cost of the loan out-of-pocket rather than from the loan itself, would you take it? While people are responsible for managing their own finances, creative lending methods such as the Refund Anticipation Loan exploit the ignorant and uneducated for money they need.

General Tax Advice
Use family friends or a computerized tax program like Turbotax or even Taxcut (although Taxcut is affiliated with H&R Block, and will try to sell you on products during the course of the program). Tax preparers are only necessary for people with complicated returns, high income, or unique situations, such as a large inheritance or winning the lottery. If you work a regular job and have basic savings like a 401(k) and/or Roth IRA, you should skip the chain tax preparation offices. Tax software is simple and straightforward, and you'll save a lot more money.