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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.
One caveat to bear in mind is that personal loan lenders generally prohibit the use of funds for higher education costs because loans that are meant for students must follow additional stipulations that don't apply to regular loans.
Under the 2008 Higher Education Opportunity Act, lenders providing private education loans must make special disclosures, provide a 30-day rumination period, give borrowers the option to cancel within three days of disbursing the funds and cannot affiliate themselves with schools, among other regulations loans for educational use must follow, so it's unlikely you'll find a personal loan lender that will allow you to use the funds for college-related expenses.
Using a personal loan for business expenses can be another gray area since some lenders don't allow borrowers to use funds for business-related costs — interest on a business loan, however, is tax deductible. If you need to borrow more than $100,000 for business expenses, you're better off applying for a small business loan since personal loan lenders don't tend to offer more than $100,000.
If you're not planning to use a personal loan for education or business expenses and instead want to use it for, say, a home repair, know that you won't be able to claim a tax deduction for the interest but will at least have a ton of lenders and terms to choose from.
Select named LightStream as the best overall personal loan lender for its expedited approval process — you can receive your funds the same day as long as you apply on a banking business day, your application is approved and you can electronically sign your loan agreement and verify your direct deposit banking account information by 2:30 p.m. ET. LightStream offers some of the lowest interest rates around, providing borrowers with a 0.50% APR discount when they sign up for autopay. It also gives borrowers between 24 and 144 months to repay their loans.
Annual Percentage Rate (APR)
7.99% - 25.99%* APR with AutoPay
Debt consolidation, home improvement, auto financing, medical expenses, and others
$5,000 to $100,000
24 to 144 months* dependent on loan purpose
Early payoff penalty
Terms apply. *AutoPay discount is only available prior to loan funding. Rates without AutoPay are 0.50% points higher. Excellent credit required for lowest rate. Rates vary by loan purpose.
If you're hoping to use a personal loan to consolidate your debt, Happy Money offers an option that helps make the process as hassle-free as possible — using direct payments to send money to creditors, which ensures that funds are used to directly wipe out your debt. You'll need to provide your creditors' account numbers and addresses, as well as the amount(s) you'd like paid. Happy Money then deposits anything that's left over into your connected bank account.
Annual Percentage Rate (APR)
11.25% - 24.50%
$5,000 to $40,000
2 to 5 years
0% to 5% (based on credit score and application)
Early payoff penalty
5% of monthly payment amount or $15, whichever is greater (with 15-day grace period)
*Your LightStream loan terms, including APR, may differ based on loan purpose, amount, term length, and your credit profile. Excellent credit is required to qualify for lowest rates. Rate is quoted with AutoPay discount. AutoPay discount is only available prior to loan funding. Rates without AutoPay are 0.50% points higher. Subject to credit approval. Conditions and limitations apply. Advertised rates and terms are subject to change without notice. Payment example: Monthly payments for a $10,000 loan at 7.99% APR with a term of three years would result in 36 monthly payments of $313.12.