Owe the IRS More Than You Can Pay Right Now?
An IRS payment plan is not your only option. A personal loan can sometimes save you money on interest, avoid federal tax liens, and give you a fixed payoff timeline. Here is how the best personal loan options compare for paying your 2026 tax bill.
When a Personal Loan Makes Sense
- IRS interest adds up fast. The IRS currently charges roughly 8% annual interest plus a 0.5% monthly failure-to-pay penalty on unpaid balances. That combination can exceed 10% per year.
- Personal loan rates can be lower.A borrower with good credit can qualify for a personal loan at 6–12% APR with no penalties for on-time payments — potentially cheaper than the IRS.
- Fixed monthly payments. A personal loan gives you a set payment schedule. IRS penalties, on the other hand, accrue variably and can be harder to predict.
- No IRS lien risk. If you owe more than $10,000 and do not set up a payment plan, the IRS can file a federal tax lien against your property. Paying with a personal loan eliminates that risk entirely.
- Faster payoff timeline. A structured loan with fixed payments often leads to paying off the debt faster than an IRS installment agreement with accruing penalties.
When It Does NOT Make Sense
- You qualify for an IRS short-term plan.If you can pay within 180 days, the IRS charges 0% interest on the plan itself — you only pay the standard failure-to-pay penalty. For small balances, this is usually the cheapest option.
- The loan APR is higher than IRS rates. If your credit score lands you a loan at 15%+ APR, you are likely better off with an IRS installment agreement.
- You cannot afford the monthly payments. A personal loan with fixed payments is only helpful if you can actually make them. Defaulting on a loan damages your credit and creates a second debt problem.
- You may qualify for an Offer in Compromise. If your tax debt is significantly more than you can reasonably pay, the IRS may accept a reduced amount through an Offer in Compromise. Taking out a loan to pay a debt you might be able to settle for less does not make financial sense.
IRS Payment Plan vs. Personal Loan vs. Credit Card
| Method | Rate / Penalties | Credit Check | Term | Lien Risk |
|---|---|---|---|---|
| IRS Payment Plan | ~8% interest + 0.5%/mo penalty | None | Up to 72 months | Yes (for balances over $10,000) |
| Personal Loan | 6–36% APR (credit dependent) | Required | 2–7 years fixed | No |
| Credit Card | 16–28% APR | Already have it | Minimum payments (revolving) | No |
Rates are approximate as of April 2026. IRS interest rates are set quarterly and may change.
Top Personal Loans for Paying Taxes
Rates as of April 2026. All rates are approximate and subject to change based on creditworthiness and loan terms.
SoFi
8.99–29.99%
$5,000–$100,000
None
2–7 years
Best for
Borrowers who want no fees and extra protections
Unemployment protection: pauses payments if you lose your job
LightStream
7.49–25.49%
$5,000–$100,000
None
2–7 years
Best for
Excellent credit borrowers seeking the lowest rate
Rate Beat Program: will beat any qualifying rate by 0.10 percentage points
Marcus by Goldman Sachs
6.99–28.99%
$3,500–$40,000
None
3–6 years
Best for
Flexible repayment with no fees of any kind
On-time payment reward: skip one payment after 12 on-time payments
Discover
7.99–24.99%
$2,500–$40,000
None
3–7 years
Best for
Direct payment to the IRS on your behalf
Can send loan funds directly to your creditors, including the IRS
Upgrade
8.49–35.97%
$1,000–$50,000
1.85–9.99%
2–5 years
Best for
Lower credit scores or smaller loan amounts
Accepts credit scores as low as 580; low $1,000 minimum loan
Best Egg
8.99–35.99%
$2,000–$50,000
0.99–8.99%
3–5 years
Best for
Fast funding when you need to pay the IRS quickly
Funding as fast as one business day after approval
How to Decide: IRS Plan vs. Personal Loan
Owe less than $10,000?
The IRS short-term payment plan is probably your best option. You can pay within 180 days with no setup fee for online applications, and you avoid the complexity of a loan application.
Owe $10,000–$50,000?
This is the sweet spot for comparison. Get your personal loan rate quote (most lenders offer soft-pull pre-qualification) and compare the total cost against an IRS installment agreement. Factor in the IRS setup fee ($31–$225) plus ~8% interest plus penalties.
Owe more than $50,000?
At this level, talk to a tax attorney or enrolled agent before making any decisions. You may have options beyond standard payment plans. Find a tax professional→
Credit score above 670?
You will likely qualify for personal loan rates that beat the IRS combined interest and penalty rate. Get quotes from two or three lenders and compare.
Credit score below 670?
The IRS payment plan is probably the better choice. It requires no credit check, and the rates you would get on a personal loan at this credit tier (20%+) are likely worse than what the IRS charges.
Tax Implications of Personal Loans
Interest is NOT tax deductible. Unlike mortgage interest or student loan interest, the interest you pay on a personal loan is generally not deductible on your federal tax return. This is true even if you use the loan to pay a tax bill.
Exception for business tax payments. If you use personal loan proceeds to pay taxes owed on business income (Schedule C, partnership, or S-corp), the interest may qualify as a deductible business expense. Consult a tax professional to determine if this applies to your situation.
Forgiven debt is taxable income. If you negotiate an Offer in Compromise and the IRS forgives part of your debt, the forgiven amount is generally reported as taxable income on Form 1099-C. Taking out a loan instead means no forgiven debt and no surprise tax bill the following year — but you also pay the full amount owed.
Frequently Asked Questions
Can I get a personal loan to pay the IRS?
Yes. Most personal loan lenders allow you to use the funds for any purpose, including paying a tax bill. You apply for the loan, receive the funds, and then make a payment to the IRS directly. The IRS does not need to approve or be involved in the loan process.
Is it better to get a loan or set up an IRS payment plan?
It depends on the amount you owe, your credit score, and how quickly you can pay. For debts under $10,000, the IRS short-term payment plan is usually cheapest. For larger amounts, a personal loan with a good rate (under 10-12% APR) can save you money compared to IRS penalties and interest, which combine to roughly 8-10% annually. Compare the total cost of each option before deciding.
Will a tax debt affect my ability to get a loan?
An unpaid tax debt itself does not appear on your credit report. However, if the IRS files a federal tax lien, that becomes public record and can significantly damage your credit score and ability to get approved for a loan. This is one reason some people prefer to pay the IRS with a personal loan before a lien is filed.
Is personal loan interest tax deductible?
Generally, no. Interest on personal loans is not tax deductible. The one exception is if the loan proceeds are used to pay business-related tax obligations — in that case, the interest may qualify as a business expense deduction. Consult a tax professional for guidance specific to your situation.
What happens if I can't pay the loan?
If you default on a personal loan, the lender will report the missed payments to the credit bureaus, which will damage your credit score. The debt may be sent to collections or the lender may pursue legal action. Unlike IRS debt, personal loan debt cannot result in wage garnishment without a court order in most states. If you are struggling to make payments, contact your lender immediately — many offer hardship programs or modified payment plans.
Need Help Figuring Out the Best Way to Handle Your Tax Debt?
IRS payment plans, personal loans, and Offers in Compromise each have trade-offs. A qualified tax professional can review your situation and recommend the option that saves you the most.
Talk to a Tax ProThis page is for informational purposes only and does not constitute tax, legal, or financial advice. APRs and loan terms shown are approximate as of April 2026 and are subject to change without notice. We may earn a commission if you apply through our links, at no extra cost to you. Consult a qualified tax professional for guidance specific to your situation.