The only thing worse than owing taxes to the IRS is not having the money to pay them.
Considering Bankrate found 61% of Americans don’t have enough saved to cover a $1,000 emergency, you might not have cash on hand to cover an unexpected tax bill.
While there are several options for paying what you owe, one option could be using a personal loan.
Read on to learn more about this approach, along with tips on how to get a personal loan to pay your taxes.
How to get a personal loan to pay your taxes
Personal loans are installment loans, typically with fixed monthly payments, that you can pay off over time.
If you’re wondering how to get a personal loan to pay your taxes, rest assured you have lots of choices. In most cases, you can use a personal loan for just about anything. But some lenders have restrictions. So ensure the lender allows you to use it for taxes.
But make sure tax repayment is one of the acceptable uses before you borrow.
Online lenders such as Earnest and Avant make it easy to apply online and get funds in your account fast. They also offer rate quotes so that you can see if you pre-qualify for a loan after entering a few basic pieces of personal information.
Also, some lenders such as Upstart and Payoff charge origination fees, though there are lenders such as SoFi that charge none. Interest rates can also vary by lender, though FreedomPlus offers fixed rates as low as 4.99%.
You might also consider peer-to-peer lenders such as LendingClub. These companies also let you apply online, but your loan will be funded by an individual investor, rather than by an institution.
Finally, you could go with personal loans from traditional banks or credit unions, especially one with whom you already hold an account. You might get special interest rate discounts for being a customer.
Just as you should explore your options for paying your taxes, it’s also useful to compare offers for multiple personal loans to find the best one.
What you need to qualify for a personal loan
As for how to get a personal loan to pay your taxes, you typically need:
- A strong credit score, likely 640 or higher
- A low debt-to-income ratio
- Sufficient income to pay back the personal loan
If you don’t meet these requirements, you could apply with a creditworthy cosigner who does, or opt for a secured personal loan. A secured loan requires collateral, such as the value of your savings, investments, car, or home.
Although secured personal loans tend to have low rates, they can be risky. If you can’t repay the loan, the creditor could seize your collateral. So make sure you have a solid plan for repayment before risking your assets.
Determine if the IRS payment plan is cheaper for you
With an IRS payment plan, you can pay your taxes back over a period, rather than all at once. But the IRS will charge you:
- Accruing interest on your unpaid balance until it’s paid off
- A penalty fee of 5% or more on the amount you owe if you’re filing late, up to a maximum of 25%
- $135, or 100% of the unpaid tax (whichever is smaller), if your return is more than 60 days overdue
- Other penalties and fees where applicable
If you’re on a long-term IRS payment plan with more than 120 days of automatic withdrawals from a checking account, you’ll also pay a $31 online setup fee, or $107 if you apply by phone, mail, or in person. These fees are reimbursed, however, if you qualify as low income.
If you don’t have automatic withdrawals on your IRS payment plan and you’re paying in more than 120 days, you’ll pay a $149 online setup fee. If you’re applying by phone, mail, or in person, you’ll pay a $225 setup fee. If you’re low income, it’s a $43 setup fee that might be reimbursed if you meet certain conditions.
Ultimately, an IRS payment plan could still cost you less than the interest and fees you’d pay on a personal loan. But it’s useful to compare costs to see which one is the better option, especially if you can qualify for a low-rate personal loan.
“Sometimes, it’s wise to take a loan to pay taxes if the late fees [and] interest rate that the government would charge are higher than the interest rate a lender would charge you,” said Priyanka Prakash, a financial writer at Fundera, a small-business loans platform.
If you owe local fees, Prakash also said to watch out for interest rates and fees charged by state and local governments.
“When you add all of these up, the penalties are pretty hefty,” she warned.
You could also use a credit card to pay your tax bill, though you might get charged a fee just under 2% by the IRS. Consider using a card with a 0% APR promotional period to minimize interest. But you want to make sure you can pay off your balance before the promotional period comes to an end.
Improve your financial habits for next year
When it comes to paying your tax bill, the advice is simple: Find the option that costs you the least amount of money in interest and fees. Our personal loan calculator can help you do the math on interest rates and fees.
Besides figuring out how to get a personal loan to pay your taxes (or using another method), you might also make changes so that you don’t find yourself in the same situation next year.
You could readjust how many exemptions you claim on your W-4, for instance. You could also revamp your budget and start saving an emergency fund.
By setting aside enough savings, you’ll be prepared to cover unexpected expenses, such as overdue taxes, without having to go into debt.
Interested in a personal loan?Here are the top personal loan lenders of 2018!
|Lender||APR Range||Loan Amount|
|1 Includes AutoPay discount. Important Disclosures for SoFi.
2 Includes AutoPay discount. Important Disclosures for Payoff.
3 Important Disclosures for FreedomPlus.
4 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
5 Important Disclosures for LendingPoint.
6 Important Disclosures for LendingClub.
All loans made by WebBank, Member FDIC. Your actual rate depends upon credit score, loan amount, loan term, and credit usage & history. The APR ranges from 6.16% to 35.89%. For example, you could receive a loan of $6,000 with an interest rate of 7.99% and a 5.00% origination fee of $300 for an APR of 11.51%. In this example, you will receive $5,700 and will make 36 monthly payments of $187.99. The total amount repayable will be $6,767.64. Your APR will be determined based on your credit at time of application. The origination fee ranges from 1% to 6% and the average origination fee is 5.49% as of Q1 2017. There is no down payment and there is never a prepayment penalty. Closing of your loan is contingent upon your agreement of all the required agreements and disclosures on the www.lendingclub.com website. All loans via LendingClub have a minimum repayment term of 36 months or longer.
7 Important Disclosures for Earnest.
8 Important Disclosures for Avant.
* The actual rate and loan amount that a customer qualifies for may vary based on credit determination and other factors. Funds are generally deposited via ACH for delivery next business day if approved by 4:30pm CT Monday-Friday. Avant branded credit products are issued by WebBank, member FDIC.
** Example: A $5,700 loan with an administration fee of 4.75% and an amount financed of $5,429.25, repayable in 36 monthly installments, would have an APR of 29.95% and monthly payments of $230.33
* Important Disclosures for Upgrade Bank.
Upgrade Bank Disclosures
** Accept your loan offer and your funds will be sent to your bank via ACH within one (1) business day of clearing necessary verifications. Availability of the funds is dependent on how quickly your bank processes this transaction. From the time of approval, funds should be available within four (4) business days.
|7.73% – 29.99%||$1,000 - $50,000||Visit Upstart|
|6.26% – 14.87%1||$5,000 - $100,000||Visit SoFi|
|6.99% – 35.97%*||$1,000 - $50,000||Visit Upgrade|
|8.00% – 25.00%2||$5,000 - $35,000||Visit Payoff|
|4.99% – 29.99%3||$10,000 - $35,000||Visit FreedomPlus|
|5.99% – 18.99%4||$5,000 - $50,000||Visit Citizens|
|15.49% – 34.49%5||$2,000 - $25,000||Visit LendingPoint|
|6.16% – 35.89%6||$1,000 - $40,000||Visit LendingClub|
|6.99% – 18.24%7||$5,000 - $75,000||Visit Earnest|
|9.95% – 35.99%8||$2,000 - $35,000||Visit Avant|