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Paying tax debt with a personal loan

Is Paying Tax Debt With a Personal Loan a Good Idea?

Paying tax debt with a personal loan can have both advantages and disadvantages. Here are some pros and cons to consider:


  1. Fixed interest rate: Personal loans usually have a fixed interest rate, which means you’ll know exactly how much interest you’ll pay over the life of the loan. This can help you budget for your payments and avoid surprises.

  2. Predictable repayment terms: Personal loans have a set repayment term, usually between one and five years. This can help you create a plan to pay off your tax debt in a specific timeframe.

  3. Improved credit score: If you have a good credit score and make your payments on time, paying off your tax debt with a personal loan can help improve your credit score.

  4. Avoiding IRS penalties: By paying off your tax debt with a personal loan, you can avoid the penalties and interest that the IRS charges for unpaid taxes.


  1. Interest rates: Personal loan interest rates can vary widely depending on your credit score and other factors. If you can’t qualify for a low-interest loan, you could end up paying more in interest than you would have paid in IRS penalties and interest.

  2. Origination fees: Personal loans can come with origination fees, which can add to the overall cost of the loan.

  3. Risk of default: If you can’t make your payments on the personal loan, you could default on the loan and damage your credit score further.

  4. Missed opportunities: The IRS offers payment plans and other options to help taxpayers pay off their tax debt. By taking out a personal loan, you may be missing out on these other options, which may be more affordable or flexible.

In summary, paying tax debt with a personal loan can be a good option if you can secure a low-interest loan and make your payments on time. However, it’s important to weigh the costs and benefits of this option against other options and to consider your overall financial situation before making a decision.

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