Are personal loan payments tax deductible?

    Have you ever considered taking a personal loan for paying off your tax debt? It may not be recommended or necessary under normal circumstances. But, if you have accumulated substantial tax liabilities which need to be cleared within a certain deadline, a personal loan may be the best option available to you, in order to avoid penalty.

    The Inland Revenue Authority Singapore (IRAS) website is well-organised. It’ll answer almost all your questions pertaining to rules of deductions, exemptions and payment deadlines. While IRAS is known to be user-friendly, they will most certainly penalise defaulters.

    Therefore, it may be a good idea to take a personal loan to clear your tax liabilities in Singapore provided you’re short on money.

    Why Personal Loan and Not Credit Card Cash Advance?

    A Personal loan is always preferable over a cash advance because:

    • A credit card cash advance can attract an interest of up to 28% p.a. in addition to cash advance fees in Singapore. Personal loans are usually available between 8-12% p.a. If you’re lucky, introductory rates as low as 4-5% p.a. may also apply. This will save you a lot of money on interest payments.
    • If you go for a term loan, you get to pay back the outstanding balance in fixed instalments that makes planning a budget around it more convenient.
    • Paying off just the minimum balance can build up your debt real fast as interests keep accumulating. However, paying off the fixed monthly amount for a personal loan should be good enough to help you settle your loan on time.

    What Should You Check When You Shop for a Personal Loan?

    Instead of just checking the APR (annual percentage rate) or the flat rate of interest levied by the bank on the loan of your choice, check the EIR (Effective Interest Rate), which includes administrative fees, processing fees and other related expenses. While looking for the best personal loans in Singapore, don’t forget to check the EIRs for each loan.

    Many banks run promotional offers frequently. Some offer introductory interest rates. Some banks offer other joining perks on a successful loan application. One way to filter or sort personal loans is to check the joining bonuses.

    Don’t forget to check the clauses related to prepayment. Some banks may levy charges on full or partial prepayment depending on the product and the terms and conditions governing it. Some banks may waive it, too. Don’t forget to check for it when choosing a loan for settling your tax debts.

    How to Apply for a Personal Loan to Reduce Your Tax Liabilities?

    After you have chosen a personal loan option, you can go to a bank website and make an online application, if available. Alternatively, you may be able to complete a form online, download it and then submit a copy directly to the bank branch by mail or email. You might also submit it in person. Some banks will also have hotlines. If you call the bank on this number, a relationship executive will get in touch with you and help you complete the process.

    Paying off your tax debts using personal loans is convenient. However, missing out on a payment could attract an overdue interest, a late payment fee, or both. Don’t miss your payments. While most banks won’t carry out extensive verifications to issue a personal loan, they might ask for a reason. If they find your concerns regarding tax liabilities to be valid, they would issue it immediately.

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