What is a tax debt?
In Canada, working professionals legally owe a certain amount of their income to the Canada Revenue Agency (CRA) in the form of taxes. With respect to taxpayers, tax debt is any amount that is left unpaid on your balance sheet. If you refuse to make these tax payments, the CRA can take legal action against you as taxes owing to the CRA have priority over most types of debt.
However, you can use a loan to meet your tax debt obligations. For example, you can use a personal loan, home equity loans and/or consolidation loans to pay off tax debt. Different types of tax loans are available to consumers, and they can apply the loans in different ways.
Understanding tax debt
Tax debt is any amount left unpaid on your personal balance sheet. The CRA has access to this balance sheet and will determine the amount that’s payable. Normally, you can contact the CRA via a phone call.
Ordinarily, the CRA will wait 90 days until it takes legal action. Prior to doing so, they will make three attempts to give a verbal warning by making a phone call. They will also send a legal notice through the mail. However, various loans can help abate the stresses of tax debt.
How can tax debt affect credit score and financial standing?
Fortunately, having tax debt is not something that is shown in your credit report. However, if the CRA has found it difficult to collect from you, this could be problematic. They can register a lien or charge against your property or other asset or even request to garnish your wages.
As you can imagine, this can become problematic as the amount owing will need to be repaid. The CRA can file a negative report with credit bureaus as a consequence, which will then negatively impact your credit score.
Types of tax loans
If you’re already a homeowner, you can use the equity in your home to secure financing. The home equity acts as collateral and the loan amount is based on the value of the property. It can also be used to pay off tax debt. Furthermore, it’s easier to access a home equity loan with Alpine Credits than a conventional tax loan with other lenders and banks.
You can use a home equity loan from Alpine Credits for various purposes as well, including:
Combine multiple debt sources into one loan. When you get a loan from Alpine Credits, you only need to think about one monthly payment instead of trying to manage multiple. The interest rate on a home equity loan is also lower than the collective amount of interest from multiple debts. learn more
Use the money from your home equity to renovate parts of your home. Whether you need something fixed promptly or just want a new look, renovating your house increases its value, allowing you to build more equity. learn more
Use the funds to invest in your business operations. With the flexibility that home equity loans provide, they can be used towards launching a new business or towards the needs of the business. learn more
You will get approved in less than 24 hours as long as you have paid at least 25% of your mortgage. Your approval rests on the equity you’ve built up in your home and not your income or credit score.
Other than home equity loans, there are other options that you can consider to pay off tax debt:
They can be used to pay off anything, including tax debt. However, lenders charge a higher interest rate on this type of loan and without security from a property, their lending requirements may be more strict.
This is a great option to pay off tax debt. You can borrow up to a certain amount, repay the line of credit and borrow against again if needed. It’s a very flexible loan option that will help manage your cash flow if your tax debt (or other cash needs) varies constantly. Home equity lines of credit (HELOCs) are also available at certain lenders.
If you cannot pay your tax in one go, you can set up a payment plan with the Canadian Revenue Agency. They offer a tax payment arrangement program that will help you make payments comfortably over a longer period.
You can also use conventional bank loans to pay off tax debt. However their approval process can be quite strict as they require a strong credit score and a good debt-to-income ratio. Also the terms and conditions may vary from one bank to the next, so be sure to take every opportunity into consideration before deciding.
Home equity loans vs. personal loans
When dealing with tax loan, Canadians may be deliberating on whether to apply for a home equity loan or for a personal loan. Here are some of the key differences between home equity and personal loans:
|Home equity loans||Personal loans|
|Interest rate||– Secured loan
– Lower Interest rates
– Less payments towards interest
|– Unsecured loan
– Higher interest rate
|Loan amount||– Larger amount (amount dependent on value of equity)||– Limited amount (amount determined by borrower’s creditworthiness)|
|Collateral||– Property serves as collateral||– None|
How to qualify for a tax loan with Alpine Credits
Alpine Credits can provide you with a home equity loan that can be used to pay off tax debt. To qualify, you simply need to be a homeowner. We don’t look at your credit score, bank statements, or proof of employment.
To apply a for a home equity loan, all you need to do is fill out our digital application on our website. It will not take you more than two minutes to fill, and you can get approved in less than 24 hours. Moreover, the funds can be deposited in your account in a week.
Other banks and lenders may be able to provide lower interest rates. However, you will need the following documents to qualify for tax loans:
- Bank statements
- Proof of income
- Proof of employment
- Government issued identification
- Strong credit report with no derogatory credit items
- Demonstrated ability to service the additional debt
Advantages of tax loans
There are various benefits to using home equity loans for tax debt:
- The interest rate on home equity loans is relatively lower than other personal loans.
- Your credit score and income are not critical factors in your approval for a home equity loan with an alternative lender like Alpine Credits.
In general, these are the advantages of using a loan to pay off tax debt:
- It will help pay off your tax debt immediately and avoid any legal consequences.
- If you’re on good financial standing, you can negotiate lower interest rates. This will be cheaper than tax debt repayment plans.
- You’ll also have the ability to consolidate multiple tax debts into one payment. You can use a consolidation loan to achieve this.
Tips to remember when applying for tax loans
Tax loans can be very beneficial. However, you should ensure that you do your research to understand what to avoid.
- Make sure you can afford your monthly payments before you apply.
- Avoid defaulting on your payments if you are using a secured loan as you risk losing your collateral, like your property.
Frequently asked questions
Tax debt doesn’t directly affect people’s ability to borrow. You can use a personal loan or home equity loan to pay tax debt.
You can borrow as much as you need with home equity loans from Alpine Credits. Other loan options will have different or even limited loan amounts.
Yes, you can secure tax debt loans with bad credit. However, it’ll be difficult to secure low interest rates and flexible payment terms.
You will accrue more interest and increase the burden of debt if you default on loan payments. Also, not paying your tax debt can bring legal consequences.
Yes, you can borrow from a bank, alternative lender, and/or use home equity to pay off your debt. With Alpine Credits, you have the liberty to use your home equity for any purpose, including paying your tax debt.