There are many advantages when it comes to using a personal loan to cover a large expense. For one, personal loans tend to carry lower interest rates compared to credit cards, which makes them a more affordable option for borrowing money. While each lender has its own funding limit, you can also generally apply for up to $100,000, which should allow you to cover big expenses such as surprise medical bills or an emergency home repair. Not only that, funds are typically disbursed 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 is, the more you’ll end up paying in interest over the life of the loan. If the Internal Revenue Service typically allows individuals to claim a tax deduction on interest paid toward student loan debt, you may be wondering if you can also claim a tax deduction for interest paid on a personal loan.
The short answer is, unfortunately, no. The interest paid on personal loans is generally not tax deductible. If, however, you used a personal loan to fund college expenses or business expenses, you may be able to deduct the interest paid on your taxes. According to the Federal Student Aid website, you can take a tax deduction for interest paid on a loan that’s used for higher education, even if it’s not a federal student loan.