Get the IRS off your back and your taxes on track with a personal loan.
The Internal Revenue Service (IRS) can make even the most brave-hearted among us want to make a break for the hills. So many forms, worksheets and if–then stipulations can make anyone’s head spin — and it’s unsurprising that sometimes things can go a little wrong.
The IRS can be unforgiving when you owe them back taxes — as are the interest and fees associated with late payments. But you may be able to pay off the IRS all at once and get a little peace of mind. In this guide, we cover personal loans as an option — how to get them and why they might be right for you.
First, can I use a personal loan to pay my taxes?
You can. In fact, you can use a personal loan for nearly any legitimate purpose, which includes IRS debt. You can typically borrow between $2,000 and $50,000 and take between one and five years to pay it off.
When applying for a personal loan, you’re generally asked what you plan to use your loan for. Your reason is a factor used by the lender when evaluating your application and could affect your approval as well as your loan’s terms. As you can imagine, paying taxes could be considered more responsible than paying for a vacation.
Should I use a personal loan to pay my taxes?
Ask yourself the following questions to help you decide if a personal loan is the best solution for you.
- How much do I owe? Personal loans typically come in amounts ranging from $2,000 to $50,000. If you owe more or less than this, a personal loan might not be able to fully help you with your taxes.
- What’s my credit score? You’ll typically need to have good or excellent credit to qualify for the most competitive loans. If your credit score is below the mid-600s, you might have a difficult time qualifying for a personal loan at all.
- Can I afford the monthly payments? Taking out a personal loan you can’t afford to repay can seriously damage your credit — and you likely won’t be able to qualify in the first place.
Compare loans to pay tax bills
What happens if I don’t file my taxes on time?
You’ll pay a large penalty if you don’t file your tax return on time and owe money. Expect to pay an extra 5% of your unpaid balance — up to a maximum 25% penalty — for every month you’re late with your return.
Even if you’re worried about how you’re going to pay your taxes, it’s a good idea to file on time if you want to avoid those hefty penalties. (The due date for 2019 is April 15 by the way). The IRS will still fine you, but it’ll be a lot less. You’ll pay 0.5% of the tax amount you owe for every month you’re late, up to a maximum of 25%.
This is on top of the interest that accumulates on unpaid taxes. The IRS generally charges a 3% interest rate plus the federal short-term rate with a rate of 3% on top of the federal short-term rate.
Going months without paying your taxes can have even more drastic consequences, with the IRS garnishing your wages, putting a lien on your property or even seizing your assets to pay them back.
Benefits of using a personal loan
The IRS levies both interest and fees when it comes to late payments on taxes. While you’ll pay interest on a personal loan, you may be able to avoid fees.
You can also benefit from a few other features, depending on the lender you go with:
- Loan term. Personal loan terms vary by lender and by amount but can range from one to seven years.
- Loan amount. With some lenders offering high maximums, you may be able to get a loan for more than just paying your taxes. But be wary of taking on unnecessary debt.
- Fees. Depending on the lender, you may be able to get a loan that doesn’t carry origination or prepayment fees.
- Unemployment protection programs. Some lenders offer you protection in the event that you lose your job and need to pause repayments.
What to watch out for
Taking on debt isn’t an easy — or fun — choice to make. Here are a few factors you’ll want to be aware of.
- Interest rates. Compare your options to find the best rate you’re eligible for. Your credit score plays a big part in how much you pay in interest. For most lenders, you’ll need a good or excellent score to get the best rates. Once you get a loan, you can save on interest by paying it off early.
- Hidden costs. Carefully read the terms and conditions for any unadvertised fees or costs. If you’re unsure of the total cost of the loan — or details of how the lender’s broken them down — don’t be shy about asking the provider you’re working with.
- Affordability. Getting a personal loan when you’re unsure if you can make timely repayments can lead to severe ramifications on your ability to borrow in the future. Defaulting can decrease your credit score for a long time to come.
Where can I get a personal loan?
You can get a personal loan to pay off your taxes from a number of places. These include banks, credit unions, online lenders and peer-to-peer marketplaces.
You might to look beyond your local bank if you need a loan to pay your taxes. That’s because they’ve been tightening their credit requirements in recent years and are generally only an option if you have good or excellent credit. Even with great credit, bank loans can take a while to process and you might not get approved on time.
Credit unions can also be slow — you’ll have to join before you even apply for a loan. For the fastest turnaround, you might want to start your search with online lenders and peer-to-peer marketplaces, which also tend to have simpler applications. You can start here by using the comparison table on this page.
How to get a personal loan to pay tax debt
Getting a personal loan to pay taxes can be a straightforward process. Once you know exactly how much you owe, you can compare lenders that offer loans of that amount. If you find a lender on our site that you’re interested in, you can start the process by clicking the Go to site button.
Once you’ve reached the application form on the provider’s website, enter the required information that can include:
- Your full name and contact information.
- Details from your government-issued ID, like your driver’s license or passport.
- Your Social Security number.
- Details about your employment, income, debt and expenses.
- The amount you’re requesting and the reason for borrowing.
Lenders usually won’t require documentation of the amount you owe, but it can be a good idea to keep your tax bill handy in case any specific information is requested.
Alternative payment options
- Credit card. If your debt is small enough or your credit limit is high enough, you may be able to pay off your debt with a credit card. Keep in mind that interest and fees may be more than those the IRS charges. It could also negatively affect your credit by raising your debt-to-income ratio.
- IRS installment plan. To apply for an IRS installment plan, you’ll need to first owe under $50,000. You’re required to complete and send Form 9465 and Form 433-F to the IRS. As typical with these forms, each comes with a very detailed (sometimes complicated) instruction sheet for its completion. Terms go up to 72 months, and combined with penalties, you can expect an interest rate of 8% to 10% per year.
- Offer in compromise. Depending on your situation, you may qualify for an offer in compromise, which allows you to settle your debt with the IRS for less than you owe. Your living expenses, income, ability to pay and asset equity are taken into account when your eligibility is assessed. The IRS supplies an online prequalification tool to help you determine whether this option is right for your situation.
- Secured loans. A secured loan uses collateral to keep your interest rate low. If you don’t have the best credit but have a something you can use as security, then a secured loan may be helpful when you need to pay your taxes.
Did you know?
Your debt-to-income ratio (DTI) is your total monthly debt payments divided by your total monthly income. For example, if your monthly income is $4,000 and you have $1,000 in monthly debt obligations, your debt-to-income ratio is 25%.
Your situation and the amount you owe to the IRS dictates the repayment method that is best for you. If you decide a personal loan is right for you, review your lending options to get the best terms and conditions. It’s possible to get out from under the boot of the IRS with a little time and patience.