No, personal loans are generally not considered taxable income. Technically, a loan of any kind is not income at all. With traditional income, such as receiving paychecks from an employer, people keep all their earnings and are not expected to pay anything back. With personal loans, borrowers are expected to pay back their loan balance in full, including interest charges.
While borrowers do not need to claim their personal installment loans as income on their taxes, an income of some kind is required in order to receive a personal loan. Lenders need to ensure that borrowers have a way to pay back the funding they request, so they usually require borrowers to provide proof of income during the loan approval process.
A borrower can prove income they have sufficient income to pay back a personal loan in several ways. Some are:
- Traditional paystubs from your employer.
- Bank account statements.
- Tax return documents.
If none of those payment methods apply to you, you and your lender can discuss your other options for showing proof of income for personal loan approval. Other lenders may be able to accept more non-traditional types of income such as disability, social security, unemployment, or court-ordered payments.
The income that borrowers use for a personal loan usually will need to be claimed as taxable income on their tax return. Hourly workers, salaried employees, business owners, and other employers all must claim their wages on their taxes each year.
Other than proof of income, borrowers must meet a few other requirements in order to be approved for a personal loan.
- Government-issued photo ID – You may use a driver’s license, passport, state ID, or any other form of photo identification that was issued by either the state or federal government.
- Bank account and routing numbers – Many lenders require bank account information in order to deliver a borrower’s approved funds via direct deposit.
- Proof of residency – In order to ensure borrowers are paired with the correct loan products, funding amounts, and interest rates, lenders must confirm where the borrower lives.