Should I use a personal loan to pay my tax bill?


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Taking out a personal loan to pay taxes can be a way to avoid IRS penalties and interest on an unpaid tax bill. (Shutterstock)

Owing money to the IRS is never fun, but it can be especially nerve-wracking when you don’t have the money to pay your tax bill.

A personal loan can be an option for paying your federal income taxes. It could also cost less than other options in the long run, such as B. an IRS installment plan. But is using a personal loan to pay taxes the right choice for you? Here’s what you should know if you’re considering using a personal loan to pay taxes.

Be sure to include personal loan interest rates in your decision. You can easily view and Compare personal loan rates from multiple lenders with Credible.

Should I take out a personal loan to pay my taxes?

Using a Personal Loan pay your taxes is not the right move for everyone. Personal loan lenders charge interest, and some charge processing fees ranging from 1% to 8% of the loan amount. So if you have the savings to pay off your tax debts or have a cheaper credit alternative available, this is probably a better way to go.

But one private loan could be your best choice to pay your taxes if:

  • You face a tax bill and you know you don’t have the cash to pay off your full balance (or won’t have it any time soon).
  • The potential interest, penalties, and fees for setting up an IRS installment arrangement for your unpaid tax bill would be higher than the interest and fees on a personal loan.
  • You have good to excellent credit history and can likely qualify for a low interest rate personal loan.

What happens if I can’t pay my taxes?

If you owe the IRS money, ignoring the debt is never a good idea. The IRS charges interest and penalties for unpaid taxes, and those penalties can quickly add up if your balance isn’t paid.

Depending on your situation, you could face penalties for not paying your tax bill and/or filing a tax return on time, as well as interest accruing on a daily basis.

The IRS offers both short-term and long-term repayment plans, and you can request one by either calling the IRS at 1-800-829-1040 or by email Apply for a payment plan online. IRS installment plans can be convenient and are usually less expensive than paying your tax bill with a high-yield credit card. But they have their downsides.

First, penalties and interest will continue to accrue until your tax bill is paid in full. If the amount owed is large and it will take several months or even years to repay it, this can significantly increase the amount you end up having to pay. If something happens and you can’t make a monthly payment on time, you’ll have to pay a $10 fee to revise your plan.

Both installment plans and a personal loan can help you avoid the worst-case scenario of IRS collection actions, which can include:

  • garnish your wages
  • Seizure of your bank account
  • Seize other assets and sell them to pay off debts
  • Place a tax lien on your home or other property
  • Revocation or refusal of a passport

Where can I get a personal loan to pay my taxes?

A personal loan can be a good option for paying some or all of your taxes. Because these are unsecured loans, you don’t need collateral to get a personal loan, and they’re generally widely available for borrowers with good credit ratings.

You can Find Personal Loans from different types of lenders, including brick and mortar banks, credit unions, and online lenders.

the minimum credit Result required to get a personal loan varies by lender, but many lenders will tell you upfront what their minimum requirements are. The higher your score, the more likely you are to get favorable terms, including a lower interest rate, on your loan.

Either way, it’s important to look around for the best rates and terms available. One personal loan is not necessarily like the other. Finding one that works for you — competitive interest rates, low fees, and affordable monthly payments — can take some time and effort, but it’s often worth it.

Believable makes it easy Compare personal loan rates from multiple lenders without hurting your credit score.

Pros and cons of using a personal loan to pay off a tax bill

Personal loans can be an attractive way to pay your taxes, but each loan product has advantages and disadvantages that you should carefully consider based on your unique circumstances.


  • May be cheaper than alternatives — From November 2021 the average interest rate on a personal loan was 9.09%, compared to 14.51% for a credit card, according to Federal Reserve data. Rates can be even higher for a cash advance on a credit card.
  • You don’t usually need collateral — Personal loans are usually unsecured, so you don’t have to post your home or other asset as collateral like you would with a home equity loan.
  • Does not endanger your assets or property – If you are facing financial problems and fail to take advantage of an IRS installment plan, you may face IRS collections. That could mean the IRS garnishes your wages or confiscates your bank account or other assets. This does not happen with a personal loan.
  • Manageable monthly payments — A personal loan can allow you to spread the cost of your tax bill over several years, making your monthly payments more manageable.


  • Taking on long-term debt – Personal loans can help you avoid IRS collections or high-interest credit card debt, but they also increase your long-term debt burden. This can negatively impact your credit score and increase your debt-to-income ratio, making it more difficult to apply for other types of loans, such as mortgage loans. B. a mortgage to be approved.
  • May Affect Your Credit — If you’re having trouble making your payments, the lender can report late and missed payments to the credit bureaus, which can affect your credit score.
  • May not qualify for a low rate – If you do not have a strong credit history You could get stuck and pay a higher interest rate.
  • May not qualify for a large enough loan – When you have a large tax bill, it can be difficult to get a loan large enough to cover all of the tax you owe.

You can View your prequalified personal loan rates when you compare the rates of multiple lenders with Credible.

Compare options for paying your tax bill

Personal Loans not the only way to settle your tax debt. Here’s a comparison of your options and how they stack up against an IRS payment plan:


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