As you compare potential loan companies, weighing interest rates, terms, fees, and your own budget, you may forget to ask yourself; what impact will a personal loan have on your taxes? The answer may be simpler than you think.
Personal loan companies like Nectar work hard to make the process and experience of applying for personal loans as fast, simple, and pain-free as possible. That said, we all know that taxes are none of those things. However, while your taxes may be complicated, your loan application doesn’t need to be. The good news is that, in most cases, your personal loans can be kept out of the tax reporting fray. Personal loans apply differently to your taxes than mortgages or student loans. Continue reading to learn about the effect that personal loans will have on your taxes.
Are personal loans taxable income?
Fortunately, personal loans are not considered taxable income. You will ultimately pay back more than you borrowed, so your loan is not actually income at all. The lender will profit from the loan (assuming you pay it back), so they will shoulder the tax obligations, not you.
Ultimately, taking out a personal loan will have no impact on your taxes. This is part of what makes personal loans so convenient as a financial solution. You can apply for a loan, get approved, and receive the money in your account all in less than a day, and not have to worry about reporting it at the end of the fiscal year.
Are personal loans tax deductable?
Because the loan itself is not taxable income, your loan payments are also not tax deductible. While some uses of loans do allow for certain tax deductions—such as student loans or business loans—personal loans can’t be deducted.
Is cancellation of debt taxable income?
Here’s where tax on your loans gets a bit more complicated. Your borrowed money may not be taxable income but, occasionally, and for various reasons, debts may be forgiven. If your debt is forgiven—otherwise known as cancellation of debt—your borrowed money becomes gifted money, and gifted money does qualify as income.
If you had given money to a close friend or family member and then chose to forgive that debt, said close friend or family member could write this gifted cash off as a form of “natural love and affection”. While this is recognised among family members, however, it is not recognised between borrowers and personal loan companies. Your loan will become taxable income if your debt is forgiven.
Personal loans made easy
Don’t let overly complicated forms and red tape come between you and the cash you need. Nectar, one of the most trusted names in personal loans NZ wide, makes borrowing simple with our 100% online application process, competitive and personalised rates, and same-day responses.