Using Personal Loans to Pay Taxes

Many people use personal loans to pay off their taxes every year. This situation can present you with a few benefits and drawbacks as well. Here are a few things to consider about using personal loans to pay off your taxes.

Lower Interest

One of the main benefits of using a personal loan to pay for taxes is that you can secure a lower interest rate in many cases. However, the interest rate that you get with a personal loan will depend on the lender that you work with as well as your personal credit history. With an IRS installment loan, you will pay 3 percent above the federal funds rate. In many cases, this will mean that the loan is costing you between 9 and 12 percent. If you have a good credit history, you may be able to secure a personal loan for somewhere between 6 and 9 percent. Therefore, if you want to save money, a personal loan is going to be your best option in most cases.


In many cases, IRS installment plans will come with higher fees than a personal loan will. With an IRS installment loan, you will pay a fee to set up the installment as well as some significant late charges if you are ever late on a payment. When you set up an installment agreement with the IRS, you will have to pay $105. If you cannot make a payment with the IRS installment agreement, you may have to add an additional percentage onto the rate that they are charging you. Depending on how much money you owe in taxes, this could be a significant amount. With a personal loan, there will also be late fees if you miss a payment. However, in most cases, it will be a small nominal fee that must be paid.


Your credit is going to play a role in whether you can get a personal loan. If you have good credit, then there is no reason that you should not be able to get a personal loan to pay your taxes with. However, if you have bad credit or questionable credit, it might be more difficult. Since a personal loan does not typically require any collateral, your credit is going to have to be better than average. By comparison, the IRS installment agreement does not require you to have a good credit score. They will work with anyone that is willing to set up an account with them. You have to pay your taxes to the IRS regardless of how bad your credit is. Therefore, the IRS knows that they have a better chance of collecting the money if they are willing to accept installment payments.

Making the Decision

Before deciding which option to use, you should evaluate your ability to get a personal loan first. Shop around with a few different lenders to see what they can offer. Sometimes a personal loan will be cheaper, and sometimes it will not. Just evaluate your individual situation before making a decision.

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