Is the interest you paid on a personal loan tax deductible?

There are many advantages when it comes to using a personal loan to cover a major expense. For one, personal loans tend to carry lower interest rates than credit cards, making them a more affordable option for borrowing money. Although each lender has its own funding limit, you can usually apply for up to $100,000, which should cover big expenses like surprise medical bills or an emergency home repair. Plus, the funds are usually paid directly into your checking account so you can use the money quickly and as needed.

Like any form of credit, personal loans must be repaid with interest and the longer your loan term, the more interest you will end up paying over the life of the loan. While the Internal Revenue Service generally allows individuals to claim a tax deduction on interest paid on student loan debt, you may be wondering if you can also claim a tax deduction on interest paid on a personal loan. .

The short answer is unfortunately no. Interest paid on personal loans is generally not tax deductible. If, however, you used a personal loan to fund college or business expenses, you may be able to deduct the interest paid on your taxes. According to Federal Student Aid websiteyou may receive a tax deduction for interest paid on a loan used for higher education, even if it is not a federal student loan.

One caveat to keep in mind is that personal lenders generally prohibit the use of funds for higher education fees, as student loans must follow additional stipulations that do not apply to regular loans. .

Under the Higher Education Opportunities Act 2008, lenders providing private education loans must special disclosuresoffer a 30-day cooling-off period, give borrowers the option to cancel within three days of disbursing funds, and cannot affiliate with schools, among other regulations loans for educational use must follow, it therefore, you are unlikely to find a personal lender who will allow you to use the funds for college-related expenses.

Using a personal loan for business expenses can be another gray area, as some lenders do not allow borrowers to use the funds for business-related expenses – interest on a business loan, however, are tax deductible. If you need to borrow more than $100,000 for business expenses, you better apply for a small business loan since personal lenders don’t tend to offer more than $100,000.

The best way to determine what you can and cannot use a personal loan for is to check the terms and conditions before applying and accepting it. Personal loans can typically be used to pay for anything from medical bills and home renovations to wedding and funeral expenses, or even be used for vacations or debt consolidation. As with any financial product, be sure to read the terms before agreeing to go ahead.

If you don’t plan to use a personal loan for education or business expenses and instead want to use it for, say, home repairs, be aware that you won’t be able to claim a tax deduction for interest, but that you will at least be able to have a ton of lenders and terms to choose from.

Select named LightStream as the best overall personal lender for its expedited approval process – you can receive your funds the same day as long as you apply on a bank business day, your application is approved, and you can electronically sign your loan agreement and verify your direct deposit bank account information before 2:30 p.m. ET. LightStream offers some of the lowest interest rates on the market, giving borrowers a 0.25% Annual Percentage Yield, or APY, off when they sign up for autopay. It also gives borrowers between 24 and 144 months to repay their loans.

If you are hoping to use a personal loan to consolidate your debts, Marcus of Goldman Sachs offers an option that helps make the process as easy as possible – using direct payments to send money to up to 10 creditors, ensuring the funds are used to clear your debt directly. You will need to provide the account numbers and addresses of your creditors, as well as the amount(s) you wish to pay. Marcus then deposits whatever remains into your connected bank account.

*The terms of your LightStream loan, including APR, may differ depending on the purpose of the loan, amount, term and your credit profile. Excellent credit is required to qualify for the lowest rates. The fare is shown with the AutoPay discount. The AutoPay rebate is only available before the loan is funded. Rates without AutoPay are 0.50% higher. Subject to credit approval. Conditions and limitations apply. Advertised rates and conditions are subject to change without notice. Payment Example: Monthly payments for a $10,000 loan at 3.99% APR with a term of three years would result in 36 monthly payments of $295.20.