Consumer interest can refer to both what the mass market is interested in buying and the interest consumers must pay on personal loans and credit cards. Tax-deductible interest is now only reserved for mortgages, business investments, or education.
Consumer interest can have two definitions, which are distances apart in terms of meaning. In the first sense, consumer interest can be defined as those things that the mass market and average consumers (like most of us) are interested in. This is a frequent use of the term in economic reports about what people are buying. For example, a headline like “Consumer Interest in Minivans Dwindling” suggests that the public is less interested in buying minivans.
The other way that consumer interest is used is to define certain types of interest that consumers must pay when they apply for specific loans. In general, consumer interest refers to the accrued interest on personal loans and credit cards. It tends to exclude any type of interest that is tax deductible, such as a mortgage or a loan to start a business. An assessment of how much consumer interest accumulates in a given period can suggest many things about the economy. For example, you can show if people are spending more using credit cards or if they’ve cut back on spending overall. Interest due estimates can also be used to understand interest rates and how much in debt most consumers are.
For a long time in the US Tax Code, most interest rates were considered deductible. This changed with the reforms to the IRS code with the Tax Reform Act of 1986. The provisions of the Reform Act did not take effect until 1991, but included disallowing many forms of interest, often consumer interest, as non-deductible. In most cases . People who had credit cards or car loans in the 1980s probably remember that they were able to claim a tax credit for paying interest on these loans before 1991.
Today, tax-deductible interest is generally only reserved for loans taken for mortgages, business investments, or education. It’s a good idea to understand the distinction between nondeductible and deductible interest, especially if you’re borrowing for what might be a deductible expense. If you want to go back to school, for example, from a tax perspective, it might make more sense to take out a student loan than a personal loan. It is easy to show that the student loan was used for educational purposes and that the interest you will eventually pay is not consumer interest. This argument may be more difficult to make if you use a personal loan to pay for your education.
Smart Asset.
Protect your devices with Threat Protection by NordVPN
