Should Your Client Take a Personal Loan to Pay the IRS?
Personal loan lenders are making themselves out to be the hero for people with tax debt.
The pitch is simple: “Don’t panic about the IRS. Take a quick personal loan, pay the tax bill in full, and get the IRS off of your back."
The promise of “fixing it fast” is nice, but a personal loan can either be a reasonable bridge or a financial train wreck with outrageous interest and fees.
Why This Matters
When your client can’t pay a tax bill in full, they freak and they may try to take a personal loan quickly and without thinking.
That path—taking out a personal loan to “solve” the tax debt—has consequences you inherit:
It can totally screw up cash flow.
It can lock them into a rigid payment they can’t comfortably sustain.
It can crowd out better options that were available if they hadn’t rushed.
In this article, I’ll walk through five key points to keep in mind when a client asks about using a personal loan to pay a tax bill:
What a personal loan really does to the tax problem
When a personal loan might actually be reasonable
The hidden ways this strategy backfires
IRS-focused alternatives that often get ignored
Other financing options your clients are Googling—and the traps baked into each
1. What a Personal Loan Really Does (And Doesn’t) Fix
On paper, it looks clean: The IRS wants $10,000, the client gets a $10,000 personal loan, and the IRS is happy the debt is handled.
In reality, all they’ve done is swap one creditor for another each with different rules.
With the IRS, they’re dealing with:
A statutory interest and penalty structure (and potentially abatement)
Payment plan options and formal resolution programs
A creditor whose job is to collect, but within a defined framework
Once they convert that balance into a personal loan, they’ve moved it into a different world:
A fixed monthly obligation that doesn’t care if the economy, health, or industry changes
A lender with a very simple playbook: pay or default
Double-digit APRs and origination fees that increase the true cost
But also the possibility of discharge in bankruptcy.
For a client with stable income, strong credit, and a modest tax bill—that trade-off might make sense, but for everyone else, they’ve just changed the shape of the problem, not solved it and possibly made it worse.
2. When a Personal Loan Might Be Reasonable
There are fact patterns where a personal loan isn’t crazy:
The client has strong credit and can qualify for a competitive rate with minimal or no origination fee.
The tax balance is modest, so the payment fits comfortably into their monthly budget.
They value fixed, predictable payments, and their income supports it.
They’re committed to adjusting withholding or estimates so this doesn’t become an annual tradition.
In that case, a personal loan could possibly cost less than running the balance through a credit card or letting penalties accumulate while they do nothing.
3. Where This Strategy Quietly Blows Up
Here's the other version:
The client takes a loan with a rate that felt “fine” in the moment.
There’s an origination fee, so the actual cash they receive is less than the balance they now owe.
The term stretches long enough that they’re still paying for this year’s mistake years down the road.
There’s no change to their tax behavior, so next year’s bill lands on top of the existing payment.
Then life happens. A dip in income. A divorce. A health issue. A business slowdown.
Now, this so-called "solution" results in late payments or defaults, a damaged credit score, and reduced capacity for the financing, restructuring, or planning you are attempting to implement.
4. IRS-Focused Alternatives Your Clients Don’t Really Understand
Most taxpayers don’t realize that the IRS itself often offers structured ways to resolve a balance due:
Installment agreements that spread the payments over time.
Partial-pay installment agreements when full payment before the collection deadline isn’t realistic.
Currently Not Collectible status in true hardship cases, where active collection pauses.
In limited circumstances, the possibility of settling for less than the full amount through a Partial Pay Installment Agreement or an Offer in Compromise.
Before a client signs up for a multi-year personal loan at a double-digit rate, it’s worth knowing whether there was an IRS-based path that fit the facts better.
5. The Other "Solutions” Out There
When clients can’t pay a tax bill, personal loans are just one of the options they’re pitched or talk themselves into.
Others include:
0% intro APR credit cards – Great if they pay it off in the promo period. A mess if they don’t.
401(k) loans – Borrowing from future retirement to solve a current tax problem, with repayment risk if they change jobs.
Home equity loans or HELOCs – Turning an IRS liability into debt secured by their home.
Family loans – Cheaper money financially, but expensive if the relationship strains or fails.
Each of these has a narrow use case where it can be justified. But they all come with potential side effects—for credit, liquidity, risk profile, and relationships—that show up in your work.
Each case is unique. Make sure you understand the options, the long-term effects, and what's available through the IRS.
TL;DR (Too Long; Didn’t Read)
⏩ Using a personal loan to pay a tax bill doesn't erase the problem; it trades the IRS for a private lender.
⏩ In a narrow set of facts—strong credit, modest balance, stable income—a personal loan can be a tolerable way to avoid more expensive options.
⏩ The long-term cost, inflexibility, and impact on credit and cash flow may end up making your job harder months or years later.
⏩ IRS-based resolution options often exist that don’t require new consumer debt and align better with long-term planning.
⏩ Clients are also considering 0% cards, 401(k) loans, home equity, and family money—each with its own risks that eventually land on your desk.
➥ Contact Attorney Stephen A. Weisberg for a free Tax Debt Analysis.
Contact Me Here: https://www.weisberg.tax/contact-1
Email: sweisberg@wtaxattorney.com
Phone/Text: (248) 971-0885
Address: 300 Galleria Officentre, Suite 402, Southfield, MI 48034
