Tax Deductible Title Loans Car title loans are one of the quickest and easiest ways to get money for anyone who has a car, making them a popular choice for those in need of a short-term loan. If you don’t know much about this type of loan, you may be wondering what are car title […]
Tax Deductible Title Loans
Car title loans are one of the quickest and easiest ways to get money for anyone who has a car, making them a popular choice for those in need of a short-term loan. If you don’t know much about this type of loan, you may be wondering what are car title loans? And, if you’re considering this year’s tax bill, maybe you want to know if the money you pay in interest will be tax deductible.
From how title loans work to whether there are such things as tax deductible title loans, this guide has all you need to know.
A Brief Overview of Title Loans
First, let’s look at what a title loan is. It’s a secured loan, and secured refers to the fact that there’s collateral on the loan. Unsecured loans, in contrast, have no collateral on them and the borrower simply makes a personal guarantee to pay back what they borrow.
Title loans are very popular because in most states, you only need the following items to get one:
- One form of government-issued ID
- A car that you own
- The title to that car
Certain states also require you to provide proof of income, but still, there aren’t any hoops to jump through to get a title loan. The lender doesn’t even check your credit. The entire loan process goes as follows:
- You apply for the loan. If you need help finding a lender in your area, fill out our simple application for auto title loans online and we’ll get in touch with you to provide more information.
- The lender assesses your car’s value and uses that to determine how much they can loan you. Some states also have title loan limits in place.
- You give the lender your car title and, in return, you get the title loan.
- You pay off your title loan by the due date and get your car title back.
You can also extend your title loan if necessary, meaning payment terms are very flexible.
Title Loan Interest Rates
If you’re looking for tax deductible title loans, note that the only portion of a loan which could be tax deductible is the interest you pay on it. There are zero percent title loans available in some states, and with these, you pay no interest as long as you pay off your title loan in full by the due date. With one of these loans, you obviously wouldn’t be able to deduct anything on your taxes since you’re not paying any interest.
Are There Tax Deductible Title Loans?
The million-dollar question is, if you pay interest on a title loan, can you then deduct that interest on your taxes?
The answer is no if you’re using the title loan for personal reasons, but yes if you’re using the title loan for business reasons. At that point, the interest on it becomes a business expense, and business expenses are tax deductible.
Here are a few personal reasons to get a title loan that would not qualify for a tax deduction:
- Medical bills
- Home repairs
- Paying your past-due utility bills
Here are a few business expenses that could qualify for a tax deduction
- Buying equipment for your business
- Launching a business
- Paying business supply costs
Keep in mind that you don’t need a business license to have business expenses. You could operate as a sole proprietorship, which means you don’t have a separate tax ID for your business and instead use your Social Security number. Freelancers often do this.
Should You Use a Title Loan for Business Reasons?
So, you know that you can deduct any interest you pay for a title loan on your taxes, provided you’re using that title loan for something related to your business. Is it in your best interest to do that?
What you should always remember is that title loans are most cost-effective if you get them as a short-term loan option. To avoid paying too much in interest, it’s smart to pay off your title loan as soon as you can.
This means that as a business financing option, title loans are rarely a good choice. You’re better off with a long-term business loan that you can pay off over the course of years, not months.
If you have a sudden expense for your business, then a title loan may be a smart option. Another situation where a title loan can work well is if you only need a very temporary financial boost for your business. For example, if you have a purchase that needs to be financed now and you would have the cashflow to cover it in two weeks, you can get that money a bit earlier with a title loan, and then pay it off promptly.
When it comes to tax deductible title loans, the key is to use your loan for a business reason. Do that, and you’ll be able to deduct whatever you pay in interest on your taxes.