How to Use a Personal Loan to Pay Taxes

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personal loan to pay taxes

When you owe money to the IRS, you want to take care of your debt as soon as possible. Entering an IRS payment plan may seem like the quickest way to resolve your tax debt, but these arrangements can be costly and take time. Consider exploring other options before accepting an installment arrangement with the IRS. Find out how to use a personal loan to pay taxes.  

MoneyLion helps you find personal loan offers based on your background and info you provide. You can get matched with offers for up to $50,000 from top providers. You can compare rates, terms, and fees from different lenders and choose the best offer for you.

Can I get a personal loan to pay taxes?

If you have a decent credit score, you may be able to take out a personal loan to pay your taxes. You use the money for any purpose.  

Pros and cons of taking out a personal loan to pay taxes

Consider the benefits and drawbacks of taking out a personal loan to pay taxes.  


  • Interest rate: If you have a decent credit rating, you may get a lower interest rate than with an IRS payment plan.  
  • Satisfy tax debt: Once you pay off your tax debt, you don’t have the stress of dealing with the IRS.  
  • No collateral: Personal loans are unsecured. You don’t need collateral, so you won’t risk losing assets like your home or bank account.  


  • Cost: The interest rate with a personal loan may be higher than what you get with the IRS if you have bad credit.  
  • Must qualify: Most lenders require you to meet eligibility, credit score, and income requirements to qualify.    
  • May affect your credit: Your debt-to-income ratio changes when you take out a personal loan. Your credit score could drop by taking out a personal loan.  

Using a personal loan to pay taxes means that you’re switching out one type of liability for another. Although you’ll solve your tax bill, you’ll still need a clear plan to pay off the personal loan. Budgeting for loan payments is key to your long-term financial health.

How to use a personal loan to pay taxes

Follow the steps below when taking out a personal installment loan to pay taxes.  

1. Shop around and compare offers

Start by shopping around for personal loan offers. Narrow down your choices by comparing interest rates, terms, and eligibility requirements.  

2. Gather documents

Lenders often ask for documents that prove who you are, where you live, and how much money you make each year. Speed up the application process by having documents like your driver’s license, Social Security number, and W-2s readily available.  

3. Submit your application

Some lenders let you complete and submit your loan application online. You may have to complete a loan application in person at a brick-and-mortar bank.  

4. Pay your taxes

The fastest way to settle your tax debt is to make an electronic payment through IRS DirectPay or by setting up an online account with the IRS. You may also mail a check or money order. If you owe $500 or less, you can pay in cash at an authorized IRS retail partner.  

What happens if you can’t pay your taxes?

When you can’t get a personal loan, you can work out a payment plan with the IRS to pay your taxes. The IRS could garnish your wages or levy your bank account if you don’t pay your tax bill.  

Alternatives to using a personal loan to pay taxes

You can find alternative ways to pay taxes if you can’t get a personal loan.  

1. Credit card

If you have enough available credit, you could pay off what you owe on your credit card. The IRS may charge a processing fee for a credit card payment, ranging from 1.82% to 1.98%.  

However, using a credit card to pay tax debt can be costly if you have a high interest rate.  

MoneyLion can help you explore a wide variety of credit card options tailored to different needs and preferences.

2. IRS payment plan

The IRS offers short-term and long-term repayment plans. You apply for a payment plan online. If you can pay back what you owe in 180 days or less, you pay no setup fees and have greater flexibility with your payments. 

You must complete an installment agreement for a longer repayment term. Setup fees range from $31 to $225, depending on how you apply and whether you plan to make payments electronically, by check, money order, or credit card.  

3. 401(k) loan

You could borrow money from your 401(k) retirement account to pay your taxes. The upside of a 401(k) loan is that you are paying yourself back for the loan. However, if you leave your job, you have a brief time to repay the loan. You could be taxed and charged a 10% penalty for any money you don’t pay back by the deadline. 

4. Home equity loan

You can borrow against the equity built up in your home to pay your taxes. A home equity loan may get you a lower interest rate and better repayment terms than a personal loan. Since your home is collateral, you could lose your house if you don’t repay your loan.  

Liquid asset-secured financing loan

With liquid asset-secured financing, you can borrow money against the value of your investment portfolio. The value of your portfolio determines the amount you can borrow. If the market declines and your portfolio’s value falls, you may have to repay part of your loan to cover this shortfall.  

Keep the IRS off your back: Pay taxes with a personal loan

Owing money to the IRS can be scary, especially if you don’t have the money to pay your debt. By taking out a personal loan, you can pay your tax bill quickly and potentially on better terms than what you might get with the IRS.  


What is the best way to pay off IRS debt?

Paying your taxes in full is the best way to pay off IRS debt. You’ll resolve your tax debt quickly and keep interest and penalty charges to a minimum.  

What happens if you can’t afford to pay the IRS?

When you can’t afford to pay all taxes due, look to alternative forms of financing, like loans or credit cards. You could also set up a payment plan with the IRS. 

Should I get a loan to pay off the IRS?

You may get a better interest rate and repayment terms with a personal loan. Personal loans are unsecured, so you don’t risk losing your assets if you default.

Does the IRS forgive tax debt after 10 years?

The IRS follows a 10-year statute of limitations on collecting unpaid taxes. Unless an exception applies, the IRS cannot assess or collect additional tax once this period expires. 

Does the IRS care about personal loans?

The IRS doesn’t care about personal loans you take out. Since you must repay a personal loan, you don’t pay tax on the money borrowed. 

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