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Every year, about a third of all taxpayers wait until the last minute to file their federal income tax returns. If you were one of them and underestimated your 2022 tax obligation, you could soon receive an IRS notice demanding you pay an unexpected balance.
If you made a mistake calculating your taxes or filed your return but didn’t pay the full amount you owe, you could get a CP14 notice from the IRS — the service usually sends them out within 60 days of deciding your tax return misstated the amount you owe.
If you owe taxes that you can’t fully cover on your own, a personal loan could be an option.
Here’s what you need to know about loans for tax debt:
- Can you get a loan for tax debt?
- What to do if you owe taxes
- Pros and cons of using a personal loan for tax debts
- IRS payment plans vs. personal loans vs. credit cards
- What if you can’t pay your taxes?
- Personal loan lenders
Can you get a loan for tax debt?
Yes, you can use an unsecured personal loan to pay off tax debt. However, you should consider other options before choosing a personal loan. For example, you might be able to sign up for an IRS payment plan or hardship extension.
However, if you don’t want to use a personal loan for tax debt, you can use one to cover other debts and expenses while you pay off your IRS obligation.
What to do if you owe taxes
If you end up with a tax bill, here are a few options to manage the debt:
Set up a payment plan with the IRS
Depending on how much you owe in taxes, you might be able to set up a short- or long-term payment plan through the IRS. Keep in mind that while there’s no fee to set up a short-term plan, long-term plans charge anywhere from $31 to $225, depending on how you apply for the plan.
Also note that interest and some penalties will continue to accrue until your balance is paid off.
Apply for a hardship extension
If paying taxes will cause undue hardship — meaning you’ll face a substantial financial loss if you pay your taxes by the due date — you might qualify for a short-term or long-term hardship extension. This could give you an extra six to 18 months to pay off your tax debt.
Consider a personal loan
If you’d rather deal with a personal loan lender instead of the IRS, you might consider paying off your taxes with a personal loan. In fact, the IRS says that often the cost of a loan is less than the penalties and interest the IRS charges under federal law.
Most personal loans are unsecured, which means you won’t have to worry about collateral such as your home or vehicle. These loans typically range from small loans of a few hundred dollars up to $100,000 or more, depending on the lender.
You’ll generally need good to excellent credit, usually meaning a FICO score of 670 or higher, as well as verifiable income to qualify for a personal loan. The time to fund for personal loans is generally within a week — and some lenders will fund approved loans as soon as the same or next business day.
Depending on the lender, you’ll typically have one to seven years to repay a personal loan, which could give you more time to pay off your debt compared to a payment plan.
However, keep in mind that you’ll pay more in interest on a long-term personal loan compared to a short-term loan.
If you decide to take out a personal loan for your tax debt, be sure to consider how much the loan will cost you over time. You can estimate how much you’ll pay for a loan using our personal loan calculator below.
Enter your loan information to calculate how much you could pay
With a $ loan, you will pay $ monthly and a total of $ in interest over the life of your loan. You will pay a total of $ over the life of the loan.
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Use a credit card
You could also consider putting your tax balance on a credit card. Some cards offer 0% APR introductory periods, which means you could avoid paying interest if you can repay the balance by the end of this period.
However, if you can’t pay off the card in time, you could be stuck with hefty interest charges.
Pros and cons of using a personal loan for tax debts
If you’re considering a personal loan for tax debt, be sure to consider the pros and cons first:
Pros of using a personal loan
- Funding can be quick. Some lenders offer fast personal loans that could help you cover your tax bill without delay. If you’re approved, you’ll generally have the funds within a week —though some lenders also offer next- or even same-day loans.
- Wide variety of repayment terms available. A personal loan could give you ample time to pay off your debt. Repayment terms for personal loans usually range from 1 to 7 years, depending on the lender.
- Options available for less-than-perfect credit. While some lenders require good to excellent credit to qualify for a personal loan, others are willing to work with borrowers who have poor or fair credit. For example, you might be able to get a personal loan with a 600 credit score or lower from several lenders. Just keep in mind that personal loans for bad credit typically come with higher interest rates compared to good credit loans.
Cons of using a personal loan
- Might have to pay fees. Depending on the lender, you might have to pay origination fees, late fees, or prepayment penalties — all of which could add to the overall cost of your loan.
- Interest rate depends on your credit score. You might pay more in interest on a personal loan than you would on an IRS payment plan or extension, depending on your credit.
- Requires a credit check. When you apply for a loan, the lender will use a hard credit check to review your credit. This could have a negative impact on your credit score. However, this is generally only temporary, and your score could bounce back within just a few months.
Learn More: Where to Get a Personal Loan
IRS payment plans vs. personal loans vs. credit cards
As you compare your options, here are several important points to keep in mind:
|IRS payment plan
|Federal short-term rate plus 3%
(this rate changes quarterly)
*Low-income taxpayers might qualify for a waiver or reimbursement of setup fees
|0.25% of the tax due per month
|1 to 7 years
(depending on the lender)
|None, as long as monthly payments are made on time and in full
(some cards have a 0% APR introductory period)
(credit cards have no set payoff date)
|None, as long as:
Here’s what you might expect to pay for each of these options if you had a $5,000 tax bill you wanted to pay off within one year:
- IRS payment plan: If you sign up for a long-term plan by phone, it would cost you $225 in setup fees and potentially $150 in penalties. Keep in mind that interest rates on these plans might fluctuate since rates update quarterly. This means you might pay $300 or more in addition to your tax balance. An IRS payment plan might be a good idea if you can afford to pay off your taxes quickly to avoid racking up penalty charges — such as in six months or less.
- Personal loan: Interest rates on personal loans vary depending on your credit as well as the lender. If you took out a $5,000 personal loan with a 10% interest rate and a one-year term, you’d pay a total of $5,274 over the life of your loan. A personal loan could be a good option if you need a longer period of time to pay your tax debt.
- Credit card: Interest rates on credit cards can be much higher than personal loans. If you charged $5,000 to a credit card with an APR of 16.13%, you’d pay a total of $5,447. A credit card might be a good choice if you have a small tax debt and can use a 0% APR introductory offer to repay your balance quickly while avoiding interest. Just remember that if you can’t pay off your card in time, you could be stuck with substantial interest charges.
If you decide to take out a personal loan, be sure to consider as many lenders as you can to find the right loan for your needs. Credible makes this easy — you can compare your prequalified rates from multiple lenders in two minutes.
What if you can’t pay your taxes?
You may also receive a CP14 notice if you filed your tax return and didn’t pay all the taxes you owe. The notice will include your unpaid taxes, penalties, and interest. Keep in mind that if you fail to both file and pay your taxes, you could face a combined 5% tax penalty per month, up to 25% of your unpaid taxes.
Personal loan lenders
If you decide to take out a personal loan for tax debt, be sure to consider as many lenders as possible to find the right loan for you.
|9.95% - 35.99% APR
|$2,000 to $35,000**
|11.79% - 20.84% APR
|$10,000 to $50,000
|8.99% - 35.99% APR
|$2,000 to $50,000
|7.99% - 24.99% APR
$2,500 - $40,000
|11.72% - 17.99% APR
|$3,000 to $40,000
|9.57% - 35.99% APR
|$1,000 to $40,000
|7.49% - 25.49% APR with autopay
|$5,000 to $100,000
|18.0% - 35.99% APR
|$1,500 to $20,000
|8.49% - 17.99% APR
|$600 to $50,000
(depending on loan term)
|14.3% - 35.99% APR
|$3,500 to $40,000
|8.99% - 29.99% APR10
|$5,000 to $100,000
|11.69% - 35.99% APR7
|$1,000 to $50,000
|8.49% - 35.99% APR
|$1,000 to $50,000
|7.8% - 35.99% APR4
|$1,000 to $50,0005
Keep Reading: Need a $10,000 Personal Loan?
About Rates and Terms: Rates for personal loans provided by lenders on the Credible platform range between 5.20%-35.99% APR with terms from 12 to 144 months. Rates presented include lender discounts for enrolling in autopay and loyalty programs, where applicable. Actual rates may be different from the rates advertised and/or shown and will be based on the lender’s eligibility criteria, which include factors such as credit score, loan amount, loan term, credit usage and history, and vary based on loan purpose. The lowest rates available typically require excellent credit, and for some lenders, may be reserved for specific loan purposes and/or shorter loan terms. The origination fee charged by the lenders on our platform ranges from 0% to 12%. Each lender has their own qualification criteria with respect to their autopay and loyalty discounts (e.g., some lenders require the borrower to elect autopay prior to loan funding in order to qualify for the autopay discount). All rates are determined by the lender and must be agreed upon between the borrower and the borrower’s chosen lender. For a loan of $10,000 with a three year repayment period, an interest rate of 7.99%, a $350 origination fee and an APR of 11.51%, the borrower will receive $9,650 at the time of loan funding and will make 36 monthly payments of $313.32. Assuming all on-time payments, and full performance of all terms and conditions of the loan contract and any discount programs enrolled in included in the APR/interest rate throughout the life of the loan, the borrower will pay a total of $11,279.43. As of October 9, 2023, none of the personal loan lenders on our platform require a down payment nor do they charge any prepayment penalties.
Taylor Medine has contributed to the reporting of this article.