If you’re trying to pay your taxes but you can’t afford it because you don’t have enough cash for it, looking for a personal loans to pay taxes could be a solution for you.
Not paying your taxes means that you owe money to the IRS, and that could bring you serious problems in different areas, not only your personal finances. So, even though you may be considering asking for a personal loan to pay taxes, you still need to consider the costs that are involved in the loan per se.
We know that you may be interested in turning that debt to zero to avoid penalties. That’s why in this article we explain to you if you should take a personal loan for this purpose.
Let’s recapitulate to see how personal loans work. When you apply for these loans you are borrowing money from a lender, that could be a bank, credit union, or any other financial institution. After a loan application, if you qualify, you will receive the money in your bank account. You can check your online banking to make sure of that. After that, you will have to make payments for your personal loan, plus interest over time.
Depending on your credit score, credit reports, monthly income, debt-to-income ratio, etc, you may be able to get lower interest rates and fees, which can be seen as benefits in an attractive option like this. You also won’t be in the need of collateral because they are short-term loans, not like long-term student loans.
So, if you are actually thinking about taking a personal loan, here are some things you need to consider before that:
- You need to have a predictable and stable source of income, maybe a taxable income.
- You will need to accept the loan proceeds like loan terms and interest rates.
- There’s no need for you to use collateral in a personal loan, this is not your mortgage.
- It could cost less than an IRS payment plan or even a credit card.
- You will be taking on debt that won’t be used to create investment income or finance a student loan.
- Your credit score could be harmed if you make a late payment on the loan, and could potentially make your tax bill due to interest paid.
- You can’t take this loan as personal loans are tax-deductible.
Among other things, you will also need to have in mind if your personal will actually cover your tax debt. This is another serious question to ask because there’s no going back after you borrow money.
The amount that you may be able to receive can vary according to the lender you are using, it could go from $1,500 to $100,000. You, as the borrower, need to be aware that interest payments may differ as well from one company to another.
If you aren’t able to pay the taxes you owe when they’re due, the IRS charges you penalties and interest until the balance is paid in full.
- Failure to file: You could get penalized with a 5% of any unpaid fee if you don’t file your income tax return by the due date, which usually is by April 15th. The percentage can be applied for up to 5 months.
- Failure to pay: This is related to your income taxes. Income tax is due as you earn it, if you don’t pay enough through estimated tax payments, the IRS could charge an underpayment penalty, which is 0.5% for each month that you don’t pay taxes. Deductions could be increased to 1% if you don’t pay within the next 10 days after the IRS issues a notice of intent to levy property.
- Dishonored check: The IRS could penalize you with 2% of the tax due if your payment is not made if your payment is $1,250 or more.
The IRS could charge compound daily interest until the day your tax is due. These interest rates are set for each quarter. Back in 2019, the rate was 5% for underpayments and 4% for corporations (business), and now, the maximum of this penalty could go up to 25%.
Taking a personal loan is not good or bad. It all depends on the situation you are in right and if you can actually repay what you owe. Using a loan to pay a tax debt, you could solve your problems with the IRS at once and open another one with lenders, so you need to be sure of the financial decision you’re making.
Once you receive your funds you could end up paying more in interest for your personal than if you had used the IRS payment option.
As we mentioned before, using a personal loan to pay for your taxes isn’t a good or bad choice, it all comes down to the situation you are in. What we can suggest to you, is that if you’re going to ask for a loan for this purpose, you need to do research about the different lenders and institutions you can borrow money from.
You’d be surprised about the number of people that end up paying high fees and interest for a loan when they could have found a better option right around the corner.If you need help finding a trustable lender, you can always read our blog to find more information and get in touch with us to connect you with the best lending options according to your financial situation.