Can You Get a Personal Loan to Pay Your Taxes?

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You can use a personal loan for just about anything. Even paying Uncle Sam. Read on to learn how a personal loan could be the answer to your tax bill. 

If you owe the IRS more money than you can pay right away, you have a few options, including a personal loan. Many people don’t realize that a personal loan can be used for more than debt consolidation and home renovations. Here’s how to compare personal loans with some of the other methods of borrowing money to pay your taxes to see which could be the best for you.

Can you use a personal loan to pay your taxes?

There are a few things you can’t use a personal loan for. Real estate is the most universal exception — after all, there is a reason mortgages exist, and if personal loans were allowed for real estate, it would allow borrowers to get around down payment requirements. College expenses are another common exception, and for a similar reason. Some lenders have other restrictions, such as business expenses.

However, paying your taxes is an acceptable use of a personal loan. Many lenders have a menu of options to ask how you’ll use your personal loan, and it includes things like debt consolidation, home renovations, and more. And “pay your taxes” is often on the list.

Personal loans come with fixed interest rates and steady monthly payments, and can be a solid option when it comes to paying the IRS.

Alternatives to using a personal loan

A personal loan can be a good financial tool for many different purposes, including paying your taxes. But it does have some drawbacks — mainly, you’ll have to pay interest and because it’s an unsecured type of debt, personal loans tend to have relatively high interest rates compared to some of the alternatives.

For example, if you own your home, it can be more economical to use a home equity loan or home equity line of credit (HELOC). Because these loans are secured by the equity you have in your home, they tend to have lower interest rates than personal loans. The obvious drawback, however, is that you’re effectively putting your home at risk if you are unable to pay the loan.

For an even lower interest rate, you may want to consider a balance transfer credit card with a 0% intro APR. Although credit card APRs have risen considerably in recent years, there are still readily-available balance transfer offers with a 0% intro APR for as long as 21 months. Just be sure you’ll be able to pay the debt back within the introductory period, as the average credit card APR is above 24% as of October 2023.

Finally, many people don’t realize that the IRS will allow you to set up an installment agreement that allows you to make monthly payments directly to the IRS for up to six years. These payment plans are relatively easy to set up. However, the IRS will charge you interest and late payment penalties on your debt, so one of the other options could be more economical.

How to find the right personal loan for your taxes

The bottom line is that a personal loan can certainly be a viable option if you owe the IRS money, but it isn’t right for everyone. Most personal lenders will allow you to check your interest rates without a hard credit pull, so a good place to start is to check out some of our top personal loan companies to see which could be the best fit for you.

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