Owing money to the IRS can be stressful, especially if you’re not prepared for a tax bill. Whether it’s due to under-withholding, freelance income, or capital gains from selling an asset, you might find yourself facing a tax bill you can’t afford to cover up front. If that happens, you may wonder: Can I get a loan to pay taxes?
The answer is, yes. Taking out a loan, such as a personal loan, to pay taxes is an option. However, it’s important to weigh the pros and cons carefully against other possibilities like payment plans offered by the IRS.
Below, we explore what tax loans are, the available options for paying taxes when you’re short on cash, and the potential advantages and disadvantages of using a loan to cover your tax obligations.
Table of Contents
Key Points
• You can use a loan to pay your taxes and it could potentially save money on penalties and interest.
• Personal loans offer fixed repayment terms and quick funding, but rates can be high if you don’t have strong credit.
• Home equity loans and HELOCs use home equity, providing potentially lower interest rates.
• A credit card with a 0% introductory rate could be an affordable option if you can pay off the balance before rates go up.
• Consider an IRS payment plan before deciding on any financing option.
What Is a Tax Loan and How Does it Work?
A tax loan is any form of financing used to pay off a tax debt. This can come in many forms, including personal loans, home equity loans/credit lines, payday loans, or even credit cards. These loans and credit lines are not issued by the IRS, but rather by private lenders, banks, or online financial institutions.
A tax loan allows you to pay your tax bill in full. You then repay the loan over time according to the lender’s terms. This could include fixed monthly payments over many months or years, along with interest and possible fees. Essentially, you’re swapping your debt to the IRS for a different kind of debt, one with a financial institution.
In some cases, the cost of a loan may be lower than the combination of interest and penalties the IRS charges if you don’t pay your taxes on time. Normally, the late-payment penalty is 0.5% of the unpaid taxes for each month the tax remains unpaid (not to exceed 25% of your unpaid taxes). The IRS also charges interest on your unpaid tax bill. The rate can change each quarter but was set to 7% for the third quarter of 2025.
Options to Pay Taxes
Before turning to a loan, it’s a good idea to consider all your options. The best choice for you will depend on your credit profile, financial health, and how quickly you can repay any borrowed funds.
IRS Payment Plans
The IRS offers payment plans, which you can apply for online. These plans allow you to spread the amount you owe into smaller payments without involving a third-party lender. Interest and penalties on your unpaid tax bill continue to accrue while you’re on an IRS payment plan, but the late-payment penalty drops to 0.25% per month.
There is a short-term plan for those who owe less than $100,000 and can pay the balance within 180 days. There is also a long-term plan for those who owe less than $50,000 but need more than 180 days to pay their balance. It’s free to set-up the short-term plan but the long-term plan comes with a set-up fee ($22 if you enroll in direct debts or $69 if you don’t).
Credit Cards
If your tax debt is relatively small and you have room on your credit card, paying the IRS with plastic can be a quick fix. However, this option should be approached with caution.
While the IRS allows tax payments via credit card, it does so through third-party payment processors that charge a convenience fee of around 1.75%. And if you can’t pay the credit card balance off immediately, you’ll be stuck paying high interest rates that can add up quickly.
One exception: If you can qualify for a credit card that offers a 0% introductory rate, using a credit card could be an affordable way to pay your tax bill over time. The key is to pay off your balance before the promotional rate ends (often 15 to 21 months). Otherwise this could be a costly way to get a loan to pay your taxes.
Loved Ones
Borrowing from family or close friends might be a viable option if you’re short on cash and want to avoid high-interest loans. This type of informal loan can offer flexibility in repayment terms, and often, little or no interest. It also doesn’t require a credit check, which can make it an appealing choice for people who may have a limited or poor credit.
However, mixing money with personal relationships can be tricky. If you don’t make agreed-upon payments on time or run into trouble repaying the loan, it could strain or damage relationships.
If you do decide to go this route, it’s important to be clear about expectations from the beginning. You might even want to draw up a simple agreement to outline expectations.
Payday Loans
Payday loans are short-term, high-interest loans intended to cover urgent financial needs until your next paycheck. They are typically easy to get and require little credit history, making them seem attractive for those looking for fast cash who might not qualify for other borrowing options.
However, payday loans come at a steep cost. According to the Consumer Financial Protection Bureau, fees often run around $15 for every $100 borrowed, which equates to an annual percentage rate (APR) of nearly 400%. Repayment periods are also typically short, generally two to four weeks.
Many borrowers fall into a cycle of renewing loans or taking new ones to pay off the previous ones, leading to a dangerous spiral of debt. These should only be considered as an absolute last resort.
Home Equity Loan or Line of Credit
A home equity loan and a home equity line of credit (HELOC) are both ways to borrow money using the equity in your home as collateral. A home equity loan provides a lump sum of money with a fixed interest rate, while a HELOC functions like a credit card, allowing you to borrow, repay, and borrow again against a set credit limit, often with a variable interest rate.
Home equity financing typically comes with lower interest rates than unsecured loans. But if you default on your loan or line of credit, you could potentially lose your home. This type of funding can also take some time to get, as the underwriting process typically requires multiple steps (including a home appraisal).
Personal Loans
A personal loan can be a practical solution for paying off taxes. There are different types of personal loans but typically these loans are unsecured, meaning you don’t need to put up any type of collateral. You borrow a fixed amount and repay it in equal installments over a predetermined term, typically one to seven years.
Interest rates vary widely depending on your credit score, income, and the lender’s policies. For borrowers with excellent credit, rates can be relatively low. However, those with fair or poor credit may face higher rates and fewer options.
Recommended: Personal Loan Calculator
Pros and Cons of Using a Personal Loan to Pay Taxes
Taking out a personal loan to pay taxes can be a smart financial move in some cases, but it’s not for everyone. Here’s a breakdown of the advantages and drawbacks.
Pros
• Fixed repayment terms: Personal loans come with fixed monthly payments, which can make budgeting easier and help you plan your finances. Term lengths also tend to be longer than what you could get with an IRS payment plan.
• Lower interest rates (with good credit): For borrowers with strong credit, personal loans typically offer lower rates than credit cards.
• Quick funding: Many lenders can approve and fund a personal loan within a week; some even faster. That can be helpful if your tax payment deadline is looming.
• Avoid IRS Penalties: Using a loan to pay your taxes on time can help you avoid late payment penalties and compounding interest from the IRS.
• Credit Building: Successfully managing and repaying a personal loan can have a positive impact on your credit profile.
Recommended: Paying Tax on Personal Loans
Cons
• Interest costs: Depending on your credit, personal loans can carry high interest rates that add significantly to your overall repayment amount.
• Fees: Some personal loans come with origination fees, prepayment penalties, or late fees, which can increase the total cost of borrowing.
• Could negatively impact credit: Taking out the loan will trigger a hard credit inquiry which can cause a small, temporary drop in your credit scores. Any late or missed payments could have a more damaging effect on your credit profile.
• Increases your DTI: Since a personal loan adds another monthly debt payment, it directly increases your debt-to-income ratio (DTI) (a metric that compares your monthly debt payments to your gross monthly income). This could make it harder to qualify for other types of financing, such as a mortgage or car loan, in the future.
• Not a long-term fix: A personal loan is a temporary solution. If your tax issue stems from deeper financial problems, it’s important to address the root cause.
The Takeaway
If you can’t pay your full tax liability by the deadline, it may be possible to get a loan, such as a personal loan or home equity loan, to cover the shortfall. This can help you avoid owing penalties and interest to the IRS, but it’s important to keep in mind that loans generally come with their own costs.
Before you borrow, you’ll want to carefully evaluate your financial situation, shop around for the best loan terms, and compare the total cost of borrowing against using an IRS payment plan. Understanding your options and choosing wisely can help you stay out of trouble with the IRS and protect your long-term financial health.
Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.
FAQ
Can I get a loan to pay taxes?
Yes, you can potentially get a loan to pay your taxes. One option is to apply for a personal loan from a bank, credit union, or online lender, and use it to cover your tax debt. If you own a home and have sufficient equity, another option is to take out a home equity loan or line of credit and use the funds to pay your taxes. A 401(k) loan or a credit card (ideally with a low a 0% promotional rate) are other potential options.
Before you borrow money to pay your taxes, however, it’s a good idea to explore an IRS payment plan. While the agency continues to charge interest and penalties on your unpaid balance, the cost could be lower than some borrowing options.
What is a tax loan?
A tax loan is any form of financing used to pay off a tax debt. For example, you can use a personal loan as a tax loan. This type of financing offers a lump sum you can use to pay the IRS or your local tax authority immediately. This helps avoid penalties, interest charges, or tax liens. However, tax loans also come with costs, so it’s important to weigh your options carefully.
How does a tax loan work?
A tax loan often works like a standard personal loan. You apply through a lender (such as a bank, credit union, or online lender) and if approved, you receive a lump sum, which you use to pay your tax bill. You then repay the loan in fixed monthly installments over a set period with interest.
A tax loan can be helpful if you don’t have enough cash to cover your tax bill, but it’s important to consider their potential costs and risks to determine if it’s the best approach for your situation.
Is using a personal loan for taxes better than using a credit card?
Using a personal loan for taxes can be better than using a credit card, depending on the terms. Personal loans often have lower interest rates than credit cards, especially for borrowers with good credit. They also offer fixed repayment terms, which can make budgeting easier. However, if you can qualify for a credit card with a 0% introductory rate and can pay off the balance before the rate goes up, that option might be more cost-effective.
What credit score do you need for a tax loan?
If you’re thinking of getting a personal loan to pay your tax bill, lenders generally prefer borrowers with good or excellent credit scores (mid 600s and above), though requirements vary. Borrowers with higher scores are more likely to qualify for better interest rates and loan terms. If your credit score is lower, you may still qualify through subprime lenders, but you’ll likely face higher rates. Many lenders also consider other factors — such as income, employment history, and debt-to-income ratio — when evaluating your application, not just your credit score.
Can I use a personal loan to pay property taxes?
Yes, you can use a personal loan to pay property taxes. This option can be useful if you’re facing a large, unexpected bill or trying to avoid late fees or a tax lien. A personal loan provides quick funding and fixed monthly payments, allowing you to spread the cost over time. Before going this route, however, it’s a good idea to compare interest rates and loan terms to other options, such as payment plans from your local tax authority.
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