Loan

401k loan vs. standard loan?

I am considering taking a loan on my 401k. I have a minimum of 30 years before I retire. The interest rate to borrow from my 401k is 3.25%, the rate at the credit union I bank with is 3.99%. It would be a small loan (around $1500).

I would still be making the same contribution to my 401k during the Loan Repayment period, so does borrowing from the 401k make good sense financially? I’m not an expert on finances but the 401k loan seems less time consuming and easier than a bank loan.

It’s dangerous to borrow from your 401k. If you leave your job for any reason (fired, health, whatever) you have to pay back the entire loan immediately. At a time when you have no job.
Weigh that risk against the 0.74%.

Since you plan to continue making the same contribution to your 401k while you pay back the credit union loan, be sure to contribute both loan-repayment AND the usual contribution if you take the 401k loan. Otherwise you’ve essentially skipped those contributions.

@Zarg – Wouldn’t you be paying the credit union with after-tax money as well?

Personal Finance: 401(k) : Repaying a 401(k) Loan

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