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Tax Day appears dependably every year and, ideally, you don’t end up owing the IRS money. Or if you do, hopefully you can easily pay your taxes. But that’s not always the case. If you do end up owing money to the IRS after filing your taxes, you may have options. Of course, you can dip into your emergency fund, but if you don’t have one yet, there are other options available for borrowing money when you’re in a pinch.

Everyone’s financial situation is different, so there’s not one right answer for covering your tax bill. We’ll go through the pros and cons of using a credit card, an IRS payment plan, or even a personal loan to pay your tax bill.

We should, of course, mention that this article is a broad overview of this matter. It’s always a good idea to consult a licensed tax professional for questions and help with tax-related matters.

Can I Get a Loan to Pay Taxes?

You may be able to get a loan for taxes you owe as long as you can qualify for a loan with the lender you choose. If you can qualify for a loan, you may want to consider whether it’s the right choice for your financial situation or if there may be a different option that works better for you.


💡 Quick Tip: Before choosing a personal loan, ask about the lender’s fees: origination, prepayment, late fees, etc. SoFi personal loans come with no-fee options, and no surprises.

What Is a Tax Loan?

A loan for taxes is a personal loan that is used to pay taxes owed to the IRS. The borrower receives the funds in a lump sum and spends the personal loan funds to pay their tax debt.

When looking for a lender that does tax loans, you might consider traditional banks, credit unions, or online lenders, among other financial institutions.

Recommended: How to Apply for a Personal Loan

How Does a Tax Loan Work?

If a taxpayer does not have the funds to pay the taxes they owe the IRS, one option to pay the debt is to borrow money to do so. Often, this is in the form of a personal loan, which can be either secured or unsecured. After receiving the loan proceeds, the borrower pays the IRS and begins making regular installment payments to the lender.

How to Qualify for Tax Loan

Qualifying for a tax loan is like qualifying for a personal loan intended to pay for any other expense.

Lenders will look at an applicant’s credit score, employment history, income, other debt, and possibly other lender-specific criteria. Generally, the more creditworthy an applicant is, the more favorable their loan terms and interest rate.

There are a variety of lenders who offer personal loans, so if you don’t qualify at one, you might consider looking at other places to get a personal loan.

Reasons For Tax Refund Loans

If you’re getting a tax refund, you might want the money sooner than the IRS sends it to you. For that reason, you might consider getting a tax refund loan. Also called a refund advance loan (RAL), this type of loan is a short-term loan based on the amount of tax refund you are expecting.

RALs are often offered by your tax preparation service right after you file. Similar to other loans, the interest and fees for a tax refund loan will vary by provider.

Reasons Against Tax Refund Loans

The key word in “tax refund loan” is loan — a debt. There are considerable reasons not to use this option to get an anticipated tax refund amount quickly.

•   While some tax preparers will offer tax refund loans without any interest or fees, these loans often come with costs.

•   Even if your tax refund is smaller than expected, you still have to repay the full loan amount, including any interest and fees charged by the lender.

•   If the IRS denies, delays, or garnishes your tax refund to pay another debt, you still owe the RAL — including any interest and any fees charged by the lender.

•   Interest rates on RALs offered by payday lenders tend to be high, with APRs sometimes 10 times higher than average credit card interest rates.

Filing your taxes electronically and getting your tax refund, if you’re getting one, via direct deposit generally results in you getting your money faster, often in less than 21 days.

What Happens if You Can’t Pay Your Taxes?

If you owe taxes, you may not have enough cash on hand to make that payment to the IRS, particularly if it’s a large amount. Paying a tax debt in full is ideal, but there are options if you cannot do that.

Options to Pay Tax Debt

IRS Payment Plans

The IRS offers payment plans and the potential for an “offer in compromise,” which may allow you to settle your debt for less than you owe if paying in full would create financial hardship. In some instances, you may also be able to temporarily delay collection until your financial situation improves. Depending on your situation, there can also be set-up fees, application fees, interest, and penalties that continue to accrue, increasing the amount you owe until it’s paid in full.

Credit Cards

Another option is to charge your tax expense to a credit card. The IRS charges a processing fee , which varies depending on the payment system you choose, if you pay with a credit card.

If you fail to pay off your credit card balance when it’s due, interest will accrue until the balance is paid in full. If you qualify for a credit card with a zero-percent introductory period and pay the full amount before the promotional period ends, you could pay your taxes with a credit card without incurring any interest charges.

Loved Ones

Asking a friend or family member for a loan for taxes is an option some people consider. Borrowing from someone you know generally means you won’t have to undergo a credit check. So if you don’t have great credit but are able to repay a loan, this may be an acceptable option. A close friend or family member who is confident you’ll repay the loan may not charge you interest, or charge a lower percentage rate than you might qualify for with a bank or other lender.

If you do choose to borrow money from friends or family, be clear about expectations from the beginning. For example, setting up a repayment plan could lessen the chance for miscommunication and hurt feelings.

Payday Loans

Payday loans are high-cost, short-term loans for small amounts that are often made to people who have bad or nonexistent credit. Unfortunately, this borrowing option often works in the best interest of the lender, not the borrower.

Interest rates on payday loans are much higher than other types of loans, sometimes up to 400% APR. Even using a credit card, with their relatively high-interest rates, is generally a better option than a payday loan.

The repayment term for a payday loan is small — typically, the loan needs to be repaid with the borrower’s next payday. If your tax bill is too large to pay by the time the payday loan is due, the loan may need to be renewed, adding additional fees and accruing more interest on the initial loan balance. This strategy could lead to a cycle of debt that is difficult to break.

Lines of Equity or Credit

Whereas a loan lets you borrow a set amount of money in one lump sum, a line of credit (LOC) gives you a maximum amount of credit from which you can borrow, repay, and borrow again, up to the credit limit. You make at least a minimum payment each month toward your balance due. LOCs can be secured or unsecured — a home equity line of credit (HELOC) is an example of a secured LOC, using your home as collateral.

One advantage to a LOC is the typically lower interest rates they offer compared to credit cards. However, interest rates on a LOC are often variable and can rise over the life of the loan. A drawback to a HELOC is that if you can’t repay the loan, you could lose your home.

Personal Loans

You can apply for either a secured or unsecured personal loan, the former requiring collateral to back the loan. A secured loan may have a lower interest rate because the lender can seize the collateralized asset if you default on the loan. Essentially, this lowers the lender’s perceived risk.

It’s a good idea to compare the interest rates on personal loans. They tend to start out lower than credit cards, but they can vary widely depending on your creditworthiness. The average personal loan interest rate was 11.91% as of Feb. 14, 2024. However, the rate can range anywhere from 6.40% to 35.99% depending on the lender and your unique financial circumstances.


💡 Quick Tip: Generally, the larger the personal loan, the bigger the risk for the lender — and the higher the interest rate. So one way to lower your interest rate is to try downsizing your loan amount.

Pros and Cons of Using a Personal Loan To Pay Taxes

Using a personal loan to pay taxes comes with both advantages and disadvantages. Here’s a look at how they stack up.

Recommended: Paying Tax on Personal Loans

The Takeaway

When Tax Day rolls around and you discover that you owe taxes to the IRS, it’s a good idea to consider multiple options to settle the bill. If you don’t have enough money in your bank account to pay your tax bill, you might turn to an IRS repayment plan, your credit cards, a loan from a loved one, or a personal loan.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.

FAQ

Can I get a loan to pay taxes?

Yes, a personal loan can be used to pay taxes in most cases. Applicants must meet qualification requirements like any other personal loan, which typically include a credit check, employment and income verification, and other criteria.

What is a tax loan?

A tax loan is a personal loan used to pay taxes owed.

How does a tax loan work?

Tax loans are personal loans, either secured or unsecured. The borrower uses the loan proceeds to pay the IRS and then makes loan payments to the lender.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Whether a layoff, inflation, or other bugaboo is causing you to struggle with your mortgage payments, life rafts are available.

Options for people who need mortgage relief include forbearance, loan modification, and refinancing. Here’s a closer look at each option.

What Are Mortgage Relief Programs?

Relief programs don’t magically make monthly mortgage payments disappear, but they can pause or lower those payments.

Through a perennial form of mortgage relief, mortgage forbearance, borrowers facing financial troubles may be able to defer or trim payments short term.

Note: SoFi does not offer mortgage relief programs at this time. However, SoFi does offer conventional mortgage loan options.

It’s important to know that if you even anticipate a problem making a payment, it would be smart to contact your mortgage servicer (the company you send your mortgage payments to) immediately to talk about your options.

Tardy payments damage credit scores, and late payments stay on a credit report for seven years.

Catching a Break Through Mortgage Relief

The remedies for mortgage payment anguish come in several forms.

Forbearance at Any Time

While pandemic-related laws that required lenders to provide mortgage forbearance relief to struggling homeowners expired in April 2023, many lenders offer forbearance programs to borrowers on a case-by-case basis. If you’re dealing with a short-term crisis, you can reach out to your lender and ask for mortgage forbearance, to temporarily pause or lower your mortgage payments.

Many lenders will ask for documentation to prove the hardship. They also will want to know whether the hardship is expected to last for six months or less or 12 months.

During forbearance, interest accrues and is added to the loan balance. All suspended or reduced payments will need to be paid back.

Refinancing

Homeowners coming out of forbearance may find that it’s a good time for a mortgage refinance, aiming for a lower rate and possibly different repayment term.

When choosing a mortgage term, know that the longer the term, the lower the payments, in general.

It’s generally thought that you should have at least 20% equity in your home to refinance. Your debt-to-income ratio and credit will be assessed if you apply.

There are two refi options for low- to moderate-income homeowners whose current mortgage is owned by Fannie Mae or Freddie Mac. Fannie Mae’s RefiNow and Freddie Mac’s Refi Possible are designed to help those homeowners get better mortgage rates and reduce upfront costs.

Someone with a VA loan can look into an interest rate reduction refinance loan, and an FHA loan borrower may look into an FHA Streamline Refinance or standard conventional refi.


💡 Quick Tip: Lowering your monthly payments with a mortgage refinance from SoFi can help you find money to pay down other debt, build your rainy-day fund, or put more into your 401(k).

Loan Modification

Homeowners who expect a permanent change in finances, or who are exiting forbearance but don’t qualify for refinancing, can ask for a loan modification.

Loan modification may result in a lower interest rate, a lower principal balance, an extension of the repayment term, or a combination.

You might have to prove the hardship to be approved.

Recommended: Loan Modification vs. Refinancing

Applying for Mortgage Relief

Again, when homeowners realize that they might have trouble making their monthly mortgage payment, they would be doing themselves a favor by contacting their loan servicer.

This applies to primary homes, multifamily property, and vacation homes.

Suffering in silence does no good. Working with your mortgage servicer could lead to one of the mortgage relief options described above or an agreement to try a short sale to avoid foreclosure.

A deed in lieu (an arrangement where you give your mortgage lender the deed to your home) is also sometimes used to avoid foreclosure.

Recommended: 6 Ways to Lower Your Mortgage Payment

What to Do During Forbearance

A homeowner in mortgage forbearance might want to keep track of the following:

•   Automatic payments. Any automatic payments or transfers to mortgage accounts should be paused by the borrower during the forbearance period. It’s unlikely the payments will be paused automatically, so it might be best to double-check.

•   Credit scores. On any loan, deferring payments shouldn’t affect credit scores, but homeowners might want to keep an eye on their scores in the event of an error.

•   Savings account. Now might be a good time to set aside any extra income to pay for the mortgage once forbearance ends.

•   Any changes to income. If a borrower’s income is restored during forbearance, they might need to contact their lender.

•   Property taxes and insurance payments. If homeowners insurance and taxes are paid through an escrow account, it should go into forbearance along with the mortgage. Homeowners who do not have an escrow account may be on the hook for those payments.

Homeowners interested in an extension of a forbearance period need to ask their mortgage servicer.


💡 Quick Tip: Generally, the lower your debt-to-income ratio, the better loan terms you’ll be offered. One way to improve your ratio is to increase your income (hello, side hustle!). Another way is to consolidate your debt and lower your monthly debt payments.

How to Repay Forbearance

Homeowners who received Covid hardship forbearance are not required to repay their paused payments in a lump sum when the forbearance period ends.

For those with Fannie Mae and Freddie Mac loans, options include a repayment plan with higher mortgage payments, putting the missed payments at the end of the loan, and a loan modification.

Borrowers with FHA loans can put the money owed into a no-interest lien that comes payable if they sell the home or refinance the mortgage. Or they can negotiate to lower their mortgage payments with a loan modification.

Options for USDA and VA loan repayment include adding the missed payments to the end of the loan, and loan modification.

In general, a homeowner can expect one of the following scenarios:

•   Repaying the forbearance amount in a lump sum.

•   An amount is added to the borrower’s monthly payment until the forbearance amount is repaid in full.

•   The forbearance amount is added to the end of the loan.

Recommended: Guide to Buying, Selling, and Updating Your Home

The Takeaway

Federal mortgage relief programs help homeowners who are experiencing hardship. General mortgage forbearance is possible during most any household setback. Refinancing could be an answer for some borrowers who are coming out of forbearance.

SoFi can help you save money when you refinance your mortgage. Plus, we make sure the process is as stress-free and transparent as possible. SoFi offers competitive fixed rates on a traditional mortgage refinance or cash-out refinance.

A new mortgage refinance could be a game changer for your finances.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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