Loans

Is It A Good Idea To Take Out A Personal Loan In Order To Pay Your Taxes?

Nobody likes having to pay taxes, however, these are an important part of our financial lives. They also do not offer any flexibility when it comes to due dates or amounts that you have to pay. This can create extremely stressful situations, especially when you do not have the money to pay your taxes.

An increasingly larger number of people have started taking out personal loans to pay their taxes, however, this financial decision is not always a good one. In the long run, it can do a lot more harm than good, especially if the economy is unstable.

When is it a good idea to pay your taxes using a personal loan?

Generally speaking, taking out a loan to pay your taxes is only effective if the cost of the loan is smaller than the one of entering into an IRS payment plan. This having been said, keep in mind that the IRS offers several payment plans that are specially designed to help people who are not able to pay their taxes on time. In other words, the plans are already optimized to be great ways to pay the money that you owe to the state.

This means that you should always consider taking out a loan to pay your taxes, as a last resort. In most cases, you should be able to find alternative means of getting the money that you need, regardless of how much you earn or what your credit score is. Make sure to go through all the other options before going to the bank and borrowing money.

Make sure to first explore other options and only use the personal loan as a last resort

If you are not able to make the payments, try to look for other ways of finding the money that you need. For example, if you have a credit card that has a 0% introductory APR, you may find it cheaper to use it to pay your taxes rather than getting a personal loan from the bank.

As a word of caution, keep in mind that if you decide to pay your taxes using a credit card, you will have to pay a fee that is equivalent to at least 1.87% of the balance due.

If this option does not suit you, there is also the possibility of using an online money-lending platform and borrowing the money from there. Most platforms do not perform credit score checks and do not place any sort of restrictions on what you can do with the money that you borrow. Furthermore, depending on when you are due to pay the taxes, you may be able to find platforms that can transfer you the funds in under 24 hours, however, the faster you get the money, the larger the interest rate will be.

The main advantages of online lending services are the speed with which you get the money and the fact that the loan will not affect your credit score. However, the overall cost of the online loan may be higher than what you would plat if you entered an IRS payment plan.

Consider the issues created by how you handle your unpaid taxes

Not paying your taxes on time can have serious consequences. If you only need a couple of days more to get the money there shouldn’t be any serious problems, however, if a week or more passes, you may face collection against you, which will not give you any choice.

If you do not have the money to pay your taxes and no other options are available, go to the bank and get a personal loan as fast as possible. Keep in mind that banks may require several days to assess your situation and decide if you are eligible for the loan or not. If you have a bad credit score, it may take even longer.

The government offers a large number of alternatives if you do not have the money to pay your taxes, but this requires you to think ahead and to decide which financial option is best for you. Regardless of how you choose to get the money, always pay your taxes. Avoiding the issue will only lead to serious legal action against you, which may be much more expensive in the long run.

Conclusion

Overall, using a personal loan to pay your taxes is only useful if the cost of the loan is lower than that of your other financing alternatives. Keep in mind that when you borrow money from the bank in order to pay your taxes, your credit score may be affected, on top of the fact that you will still be short on cash until you repay the loan.

Debt

Is It Ever A Good Idea To Pay Off Your Holiday Debts Using A Personal Loan?

Holidays are generally extremely stressful due to the social interactions that you may have, along with the lack of time to take care of everything that needs to get done. Things get considerably more complicated if you also factor in the fact that you will feel a lot of financial stress once you buy presents, food, and pay all of your expenses. This is the point where some may consider that they should take out a personal loan to pay off their credit card debts.

Making this financial move does have several advantages, one of the most important ones being the fact that taking out a personal loan may be less expensive than the interest that you would pay for your used credit. However, there are also disadvantages that you need to take into account or you may end up having to pay considerably more than what you initially calculated. Here is what you need to know when looking to make things a bit easier for you during the holidays:

Advantages of using a personal loan to cover your holiday debt

  • You may get a lower interest rate

Personal loans are great ways to consolidate debt due to the fact that most lenders offer interest rates that are considerably lower than that of other types of loans. If you’re close to maxing out your credit cards and want to pay them off to avoid the large expenses that come with them, a personal loan will be extremely useful. Simply look for a lender that offers a loan with a lower interest rate than what you would have to pay on your credit card.

  • Prevent your credit score from dropping

The amount of credit that you use will have an immediate impact on your credit score, lowering it. Using a personal loan to pay off your credit cards will lower your credit utilization ratio, preventing your credit score from being affected. The personal loan itself will not affect your credit score unless you miss your monthly payments.

  • It can be used in order to pay for your debt faster

Using a personal loan to consolidate your debts can be a great way to avoid long payment plans that could keep you committed for several months. This having been said, you will have to look at the terms of the agreement and ensure that the shorter monthly payment for the personal loan will not increase its total cost.

  • It can make it easier to pay your bills

If you have several credit cards you will have to constantly worry about paying each of them so that the debt will not have a bigger impact on your credit score. Using a personal loan to pay at least some of them off can save you a lot of trouble. In the best-case scenario, you will be able to pay off all of your credit card debt and only have to worry about the monthly payments for the loan.

Disadvantages of taking out a personal loan

  • Your interest rates may not be lower than that of your credit card debt

It is important to keep in mind that interest rates fluctuate and some lenders offer very little flexibility in this respect. Generally speaking, if the interest rate offered for a personal loan is relatively close to the one that you have to pay on your credit cards, there won’t be much use in consolidating your debt.

  • Having more money at your disposal can be tempting

Using a personal loan to pay off your credit cards may tempt you in using them again before you get the chance to repay the money that you’ve borrowed from the bank. While you should be able to take out another personal loan and repeat the process, the cost of all the money that you borrow will add up and you may end up having to pay considerably more than what you expect;

  • There are loan fees to consider

Most lenders will charge you origination fees that usually equivalate to anything from 1% to 8% of the total amount of money that you borrow. This may not seem like much if you borrow $5000 you may have to pay a $400-$450 fee right from the start.

Conclusion

Using a personal loan to pay off your holiday debt is usually a great idea, but you have to be smart about it. There are many companies that offer personal loans, making it easy to shop around until you find one that offers advantageous terms and conditions.

Furthermore, keep in mind that a personal loan can help you keep your credit score intact, however, it can also cause it to drop if you are late with your monthly payments.