Man paying taxes on phone at coffee shop.

Using A Personal Loan To Pay Taxes, And If It’s A Good Idea

Miranda Crace6-Minute Read
UPDATED: February 21, 2024


While some taxpayers may receive a tax refund after filing their income tax returns, others may receive a tax bill. Depending on that bill, you may end up owing thousands of dollars to the Internal Revenue Service (IRS). One option for paying off your tax bill to the IRS could be to take out a personal loan, which can be used to pay for almost anything.

Below we’ll explain how you can use a personal loan to pay taxes, and the benefits and drawbacks to doing so.

Can You Use A Personal Loan To Pay Taxes?

As stated above, you can use a personal loan to pay your taxes. If you owe thousands of dollars, a personal loan can allow you to make an on-time payment for the full amount of your taxes to the IRS by the deadline. Although you will still need to make regular monthly payments for the entire loan term, these are generally more manageable than taking on unnecessary tax debt.

Unlike most types of loans, a personal loan can be used for almost any expense. Common uses for personal loans include:

Creditors will focus on your credit history and debt-to-income ratio (DTI) when determining your loan eligibility, so potential borrowers should make sure their personal finances are in a good spot.

What Happens If You Can’t Pay Your Tax Bill?

The IRS can charge a number of different tax-related penalties, depending on the transgression. A Failure to Pay penalty will be issued if you can’t pay what you owe in taxes by the due date, equal to 0.5% of the unpaid taxes for every month they’re not paid. The IRS also charges interest on these penalties.

Above all, it's important to pay your taxes by the deadline, otherwise you might be required to pay the penalties in addition to your taxes.

Pros And Cons Of Using A Personal Loan To Pay Your Tax Bill

A personal loan can potentially help you out of a tough situation if you have a high tax bill, but it may not be for everyone. Consider the benefits and drawbacks of this solution below.



Personal loans are typically unsecured loans and don’t require collateral.

Borrowers without good or excellent credit scores could get higher interest rates.

Fixed-rate personal loans will have the same monthly payment amount for the life of the loan.

Missing a payment or defaulting on the loan could hurt your credit score.

You can typically receive your money in 1 – 7 business days.

Most lenders won’t offer personal loans for less than $1,000.

How To Get A Personal Loan To Pay Tax Debt

Personal loans can be borrowed from traditional banks, credit unions or private online lenders, and getting a personal loan involves a relatively straightforward process. Follow these steps if you want to pursue a personal loan:

  1. Look over your credit score. Your credit score has a major effect on your personal loan interest rates and repayment terms, as well as what loan amount you can borrow. Check your credit report and make sure you have a credit score of at least 650 to qualify for good rates.
  2. Figure out how much you need. If you’re taking out a loan to cover your tax bill, make sure you’re borrowing enough. Most personal loan lenders offer borrowers between $1,000 and $50,000.
  3. Shop around for the best rates and terms available. Rates, terms and origination fees vary between lenders, so look at multiple deals. It can be helpful to get prequalified for a loan for a better idea of what kind of loan you can afford with your credit score.
  4. Choose a lender and complete an application. When you’ve decided on a lender and have all the necessary documents ready, submit a full loan application. This will likely involve a hard inquiry or credit check, which can slightly lower your credit score.
  5. If approved, wait to receive your money. Personal loans typically take 1 – 7 business days to be approved and delivered into borrowers’ bank accounts. The repayment process will usually begin 30 days after the loan is approved, so have your first monthly payment ready by then.

Some lending platforms, like Rocket Loans℠, allow you to complete an application for your personal loan completely online. Certain Rocket Loans applicants may also qualify for same-day financing.1

Once your loan proceeds have been delivered, you may be able to pay your tax bill on time.

Getting a personal loan has never been easier.

The Rocket LoansSM application process makes borrowing simple.

Alternative Ways To Pay Your Tax Bill

A personal loan isn’t the only way to fund an expensive tax bill. Here are some other options to consider before trying to obtain a personal loan.

Emergency Funds

If you have an emergency savings account on hand, then you may be able to cover an unexpected tax bill. Many experts recommend building an emergency fund with at least 3 – 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.

IRS Payment Plan

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 180 days. You'll need to owe less than $100,000 to qualify for this option.

As a second alternative, they offer a long-term installment plan that will allow you to pay the full amount in monthly installments. Eligibility requires you to owe less than $50,000 to qualify for this option, and pay a $31 – $130 setup fee (low-income taxpayers can have this fee waived).

Keep in mind that over the course of your repayment plan, you'll be required to pay interest on your tax bill.

Credit Cards

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. Compared to personal loans, credit card interest rates have a tendency to run high, which can lead to a fast-growing mountain of debt

Another strategy would be to sign up for a new card that offers a 0% annual percentage rate (APR) promotional period. This can give you 6 – 21 months of interest-free repayments. If you have a large tax bill, though, that may not be enough time to pay everything off before interest kicks back in.

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 Loan Or HELOC

A home equity loan can be a risky way to pay your tax bill. When you take out a home equity loan, you're using your home’s equity as collateral to secure the loan. That means that if you can't make your payments, then you risk losing your home through the foreclosure process.

A similar option is a home equity line of credit (HELOC), but instead of a loan you get a credit line you can borrow from up to a certain amount. This option also carries the risk of losing your home through foreclosure.

Should You Take Out A Loan To Pay Taxes?

If you have a good credit score, taking out a personal loan may be a good option for affording a large tax bill. With a good credit score, you can likely find competitively low interest rates that can limit the cost of your personal loan, and with fixed rates you won’t have to worry about rising interest. You'll likely be able to pay your tax bill in full without worrying about working out a payment plan with the IRS.

Without a good credit score, though, a personal loan can be more expensive to obtain and come with high interest payments. If you want to pursue a personal loan to pay off your taxes, take steps to improve your credit score so that you can qualify for the best rates.

Final Thoughts

Tax filing season can feel stressful, especially if you have an expensive tax bill coming your way. But with the help of a personal loan or other repayment options, you can possibly afford whatever tax bill comes your way. Just make sure to compare rates with multiple lenders to ensure that you're receiving the best rate possible for you.

If you think a personal loan is your best option, apply online today with Rocket Loans and see what kinds of rates you could get.

1Same 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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Miranda Crace

Miranda Crace is a Senior Section Editor for the Rocket Companies, bringing a wealth of knowledge about mortgages, personal finance, real estate, and personal loans for over 10 years.