Can You Pay Taxes with a Personal Loan?
Tax season can feel stressful. Although many Americans will receive a tax refund, not everyone is that lucky. Instead of receiving a check in the mail, you may end up owing thousands of dollars to the IRS by April 15.
If you’re facing an expensive tax bill, then finding a way to pay that bill can be a challenge. Luckily, you have options to help cover your tax bill. Let’s take a closer look below.
Can You Pay Taxes with a Personal Loan?
Yes, you can use a personal loan to pay your taxes. If you owe thousands of dollars, the benefit of taking out a personal loan to pay your taxes is that you’ll be able to make an on-time payment for the full amount of your taxes to the IRS by the deadline. It’s important to pay your taxes by the deadline, otherwise you might be required to pay penalties in addition to your taxes.
You can pay your tax bill with a personal loan and breathe a sigh of relief. Although you will still need to make regular payments for the entire loan term, these terms are generally more manageable than taking on tax debt.
How to Get a Personal Loan to Pay Your Taxes
A personal loan is a type of installment loan that can be used for a variety of purposes. Personal loans can be a good option if you need to pay your tax bill, fund a wedding, cover a home renovation or anything in between.
At Rocket Loans, we make the process extremely easy if you are interested in taking out a personal loan. You can complete an application for your loan completely online. If you’re approved, then you can potentially receive your funds on the same day!*
Then, once you have the funds, you’ll be able to pay your tax bill on time.
Other Ways to Pay Your Tax Bill
A personal loan is not the only way to fund an unexpected tax bill. Here are some other options to consider before you move forward:
If you have an emergency fund on hand, then you may be able to cover this expense. Many experts recommend building an emergency fund with at least 3 to 6 months’ worth of expenses. In some cases, you might have enough to pay your tax bill. However, you don’t want to drain your funds to the point that you couldn’t cover another emergency in the near future. After all, you never know what life will throw your way.
The IRS offers some payment options that could be helpful to your situation.
First, they offer a short-term payment plan that requires you to pay the full amount within 120 days. You’ll need to owe less than $50,000 to qualify for this option. As a second alternative, they offer a long-term plan that will allow you to pay the full amount in more than 120 days. You’ll need to owe less than $100,000 to qualify for this option.
Keep in mind that over the course of your repayment plan, you’ll be required to pay interest on your tax bill.
If you already have a credit card account open, it can be tempting to pay your taxes that way. However, this could be an expensive strategy. Credit card interest rates can creep into the double digits quickly. That can lead to a mountain of debt that grows extremely quickly.
Additionally, you’ll need to pay a processing fee to pay your taxes with a credit card. Although the processing fee will represent a relatively small percentage, it could be a significant amount of money depending on the size of your tax bill.
Home Equity Line of Credit
A home equity line of credit, or HELOC, is one of the riskiest ways to pay your tax bill. When you take out a HELOC, you’re using your home equity as collateral to secure the loan. Essentially, that means that if you can’t make your payments, then you risk losing your home. It’s a good idea to pursue all other options before considering taking out a HELOC.
Should You Take Out a Loan to Pay Taxes?
If you have a good credit score, taking out a personal loan may be a solid option. With a good credit score, you can likely find competitively low interest rates that will limit the cost of your personal loan. You’ll be able to pay your tax bill in full without worrying about working out a payment plan with the IRS. Instead, you can repay a personal loan with fixed terms.
Without a good credit score, a personal loan can be more expensive to obtain. Take a look at your other payment options before pursuing a personal loan.
The Bottom Line
Tax filing season can feel stressful if you have an expensive tax bill coming your way. However, it doesn’t have to feel that way! With the help of repayment options, like a personal loan, you can ease the burden of tax time. Before moving forward with a personal loan, make sure to compare rates with multiple lenders to ensure that you’re receiving the best rate possible.
*Same Day Funding availability for clients completing the loan process and signing Promissory Note by 1:00PM ET on a business day. Also note, the ACH credit will be submitted to your bank the same business day. This may result in same day funding, but results may vary and your bank may have rules that limit our ability to credit your account. We are not responsible for delays which may occur due to incorrect routing number, account number, or errors of your financial institution.
Rocket Loans does not provide legal or tax advice. The information herein is general in nature and should not be considered legal or tax advice. Consult an attorney or tax professional regarding your specific situation.
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When are Personal Loans a Good Idea?
Looking to consolidate debt or fund a large expense? Read our guide to learn the benefits of obtaining a personal loan to use in several situations.