Quick comparison

  • Tax payment plan (IRS installment agreement): agreement with the IRS to pay a tax balance over time. Interest and penalties generally continue to accrue on the unpaid balance, but an approved plan prevents enforced collection actions (levy) while in good standing (IRS guidance). (See IRS: “Apply for an installment agreement” https://www.irs.gov/payments/online-payment-agreement-application.)
  • Short-term loan: funds from a bank, credit union, or online lender that must be repaid quickly, usually with higher interest and fees. No IRS fee or lien protection comes with a loan — you’re taking on private debt.

How the IRS option works (essentials you should know)

  • Eligibility: Taxpayers who owe amounts typically up to $50,000 (total balance, including penalties and interest) may be able to use the IRS Online Payment Agreement (streamlined) and pay over time; larger balances or complex situations can qualify for other installment or partial-payment arrangements if you provide financial information. (IRS: “Online payment agreement”.)
  • Term and enforcement: Streamlined plans often allow repayment up to 72 months, but the IRS sets terms case-by-case. Interest and late-payment penalties continue until the tax is paid in full; an approved and current installment agreement generally halts enforced collection while you comply. (IRS publications.)
  • Setup: You can request a plan online, by phone, or on Form 9465 in some cases. Automatic debit tends to reduce default risk and may lower setup fees — see IRS instructions for current filing methods.

How short-term loans work (essentials you should know)

  • Speed and access: Many short-term lenders provide quick approval and funding (sometimes same or next business day). Qualification depends on credit, income, and lender rules.
  • Cost: Short-term loans commonly carry higher APRs than an IRS installment plan’s effective cost (IRS interest plus penalties). Fees, origination costs, and prepayment penalties can increase the total cost.
  • Credit and collateral: Loans may require a credit check, affect your credit report, or be secured by collateral; installment agreements do not require credit checks.

When a tax payment plan is usually the better choice

  • You can afford predictable monthly payments and expect steady income.
  • You want to avoid new high-interest consumer debt.
  • You want IRS collection actions paused while you stay current on the agreement.
  • You prefer a solution that doesn’t require a credit application.

When a short-term loan may make sense

  • You face an immediate deadline (a levy is imminent or a notice requires payment before an agreement can be processed) and need funds fast.
  • You expect a near-term cash inflow (bonus, sale, funding) and want a very short bridge loan to avoid longer-term IRS interest/penalty growth.
  • You can obtain a low-cost loan (e.g., home-equity or business loan) that costs less than the combination of IRS interest and penalties over the same period.

Practical examples from practice

In my practice I’ve seen taxpayers with steady income save money by using streamlined installment agreements rather than short-term online loans that carried double-digit APRs. Conversely, when a taxpayer received a final notice and had liquid collateral, a low-cost secured loan let them clear the debt immediately and then refinance the loan at a lower rate.

Checklist to decide (quick)

  • How soon must the IRS be paid? (If immediate: consider loan or call IRS to request expedited relief.)
  • Can you make steady monthly payments to the IRS? (If yes, installment agreement is often cheaper.)
  • Will a loan’s interest and fees be lower than IRS interest + penalties for the same period? (Compare total cost.)
  • How will this affect your credit and other debts? (Loans can change credit usage; installment plans do not require a credit check.)

Important cautions and tax rules

  • Interest and penalties continue while you owe the IRS; a plan doesn’t stop accrual but stops many collection enforcement actions if you comply. (IRS: interest and penalties policy.)
  • Defaulting on an installment agreement can reopen collection actions and lead to liens or levies; keep the IRS payments current or request a modification if circumstances change.
  • Loan interest deductibility depends on how the loan proceeds are used (personal consumer loan versus business-use); consult a tax advisor for your situation.

Where to learn more and helpful guides

Authoritative sources

Professional disclaimer

This article is educational and reflects general tax and lending principles as of 2025. It is not personalized tax or legal advice. Contact a qualified tax professional or financial advisor to evaluate options for your specific situation.