While many people expect to get a tax refund each year, you could end up owing money instead. If that’s the case, you might be left scrambling to cover a surprise tax bill. If you don’t have the cash in savings, should you borrow the money you need?
Taxpayers who owe a large sum may be quick to turn to a personal loan for fast cash. However, this may not be the best choice, and there may be other options for handling your tax liability that are less expensive over the long run.
No matter how careful you are, you could end up owing money at tax time. You may have a tax bill if:
You’re self-employed or have a side gig
You had a major life change, like a boost in income or the sale of investments
You selected the wrong withholdings on your W-4
A personal loan is usually unsecured, meaning no collateral is required, and lenders have few restrictions on how a borrower can use the loan. When you take out a personal loan, you control how you spend the money, so you can use it to finance a major purchase, consolidate debt, or pay your taxes.
Loan amounts range from $1,000 to $100,000, so most taxpayers can borrow enough to cover their entire tax bill. Personal loan terms are usually between two and seven years.
Once a lender approves your loan application and disburses the loan funds to your bank account, you can pay your tax bill via check or electronic transfer. Since personal loans are installment loans, you can repay the loan in monthly installments over several years.
Related: Personal loan requirements: How to increase your chances of approval
Although there are advantages to using a personal loan to pay your outstanding federal or state income tax, there are drawbacks to consider, too:
You avoid penalties and interest: If you don’t pay your full tax obligation, the IRS will charge you a penalty; you might even be charged interest on the penalties, too. The failure-to-pay penalty is 0.5% of the unpaid amount for each month. The interest rate is the federal short-term rate plus 3%, and interest compounds daily. As of January 2026, the interest rate on underpayments is 7%.
The application process is quick: Most personal loan lenders have online applications, and you can get approved and receive your loan funds in as little as one day.
Loans are often cheaper than credit cards: Although you can use a credit card to pay your tax bill, credit card annual percentage rates (APRs) are usually in the double digits, so they’re more costly than loans. You’ll also pay processing fees to use a credit card on your tax bill, adding to the total cost.
You’ll need good credit: To qualify for the lowest rates on a personal loan, you’ll need good to excellent credit. If you have poor credit, you may qualify for a loan with higher interest rates or struggle to find a lender willing to work with you.
Loans don’t address the root cause: While a loan can help you cover your tax bill, you’ll still have to repay the loan (with interest), and it doesn’t fix the tax issues that caused you to owe money in the first place. If you don’t have a repayment plan in place, taking out a loan could worsen the issue.
Interest adds to the overall cost: A personal loan can charge origination fees and interest, so you could end up paying significantly more over time than just your tax bill.
If you’re considering taking out a personal loan to pay your taxes, consider these alternatives:
Best for: Those who owe a small amount and need a few extra weeks to pay their tax bill
If you have a relatively small tax bill and need short-term help with cash flow, you could use a credit card to cover the outstanding amount. This option is quick and easy, and, if you use a rewards card, you could earn cash back, points, or airline miles.
However, you’ll have to pay processing fees to use your card and, if you don’t pay off your credit card statement in full, you’ll owe interest too.
Read more: Can you pay taxes with a credit card, and how much will it cost?
Best for: Those who owe larger amounts
If you owe money, you could potentially qualify for an IRS payment plan. There are two main options for individuals:
Short-term plan: If you owe less than $100,000 and need a little extra time to pay your bill, the short-term payment plan gives you an extra 180 days to pay your bill.
Simple payment plan: If you owe less than $50,000 in combined taxes, penalties, and interest, the simple payment plan allows you to make monthly payments. Depending on your financial situation and the installment agreement you’re eligible for, you could have up to 10 years to pay your bill.
Penalties and interest accrue until your bill is paid in full, and there may be setup fees.
Best for: Those experiencing significant financial hardship
In some cases, you may be able to settle your tax bill for less than you owe through an IRS offer in compromise. When you apply, you have to submit details about your income, assets, and debt. The IRS reviews the information and makes a decision based on your ability to repay the money owed. If you qualify, you could pay a smaller lump sum or enter into a payment plan.
This option could be useful if you’ve become permanently disabled and unable to work, or the amount owed is greater than your assets and income. See if you might be eligible with the IRS Offer In Compromise Pre-qualifier tool.
Read more: What if I can’t pay my taxes? 5 ways to manage your bill.
To stay ahead of tax bombs next time, review your tax return and adjust your withholdings so you avoid costly surprises. If you’re self-employed, ensure you make quarterly estimated tax payments.
Not sure if you’re withholding the right amount? Make an appointment with a certified public accountant (CPA) to come up with a plan for managing your taxes. The IRS has a database of federal tax return preparers, including CPAs, so you can find one near you.
When you apply for a loan, the lender will check your credit history, which can cause your score to drop. If you miss payments, the loan can negatively impact your credit score too.
Yes, you can use a personal loan to pay federal and state taxes.
An IRS payment plan gives you more time to pay your tax bill. You’ll still owe penalties and interest, but you’ll avoid collections and have months or even years to pay your bill.
