Short answer: usually not. Personal interest is not deductible for individuals (26 U.S.C. 163(h)(1)), and the IRS lists credit card and installment interest for personal expenses as not deductible (IRS Topic 505). What counts is how you use the money: interest is allocated according to the use of the loan proceeds, not what secures the loan (26 CFR 1.163-8T(c)(1)). This page sums up IRS sources; it is not tax advice, so check your own case with a tax professional.
What the IRS says about each use
| How you use the loan | Interest deductible? |
|---|---|
| Personal expenses (bills, a vacation, paying off credit cards) | No: personal interest (163(h), IRS) |
| A business you run (not your work as an employee) | It can be, as business interest, which may be limited (163(h)(2)(A), IRS) |
| Investments | It can be, as investment interest, an itemized deduction limited to your net investment income (IRS) |
| Higher education costs | Only for a qualified student loan, taken out solely to pay qualified higher education expenses; up to $2,500 a year, with income limits (IRS Topic 456) |
| A new car | For tax years 2025 to 2028 the car loan interest deduction requires a debt secured by a first lien on the vehicle, plus other conditions (IRS). An unsecured personal loan has no lien on the car |
| Your home | Qualified mortgage interest is interest on a loan secured by your main or second home, deductible within limits (IRS) |
A student loan deduction does not need itemizing; it is an adjustment to income (IRS). A personal loan used partly for other things is not a loan taken out solely for education (IRS).
Worked example: a loan used for two things
Example, not tax advice: a $12,000.00 loan at 12% for 36 months, $398.57 a month. You spend $7,200.00 (60%) on equipment for your own business and $4,800.00 (40%) on personal bills. Interest in the first 12 payments, our calculation: $1,249.88. Allocated by use of the money (1.163-8T(c)):
| Part of the loan | First-year interest | Treatment |
|---|---|---|
| Business (60%) | $749.93 | Business interest; may be deductible, may be limited |
| Personal (40%) | $499.95 | Personal interest; not deductible |
Keep records that show where the money went. The allocation rules have more detail, for example when loan money sits in an account or is repaid in part (26 CFR 1.163-8T).
What this means when you borrow
- Compare loans by APR and total of payments, without counting on a tax break (how to read a loan disclosure).
- Paying off credit cards with a personal loan does not make the interest deductible; both are personal interest. See debt consolidation loans.
- For a business or investment use, ask a tax professional before you borrow how the interest will be treated.
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Disclosure: Modern Lending Solutions is not a lender, loan broker or agent for any lender or loan broker, and does not make credit decisions. Any compensation we receive is paid by participating lenders, only for advertising services. This guide is general information, not financial or legal advice.