Borrowing from your 401(k) can be a tempting option for covering major expenses like home repairs, medical bills, or debt consolidation. However, understanding the true cost of a 401(k) loan is critical to making an informed decision. Our free 401(k) Loan Calculator helps you estimate your monthly payments in dollars and visualizes the cost with an easy-to-read chart, empowering you to plan with confidence.
What Is a 401(k) Loan?
A 401(k) loan allows you to borrow money from your retirement savings, typically up to 50% of your vested balance or $50,000, whichever is less. Unlike traditional loans, you repay the loan (plus interest) to your own 401(k) account, usually through payroll deductions. While this can seem appealing, there are risks, such as reduced retirement savings and potential tax penalties if you fail to repay.
Key features of 401(k) loans include:
- Loan Limits: Up to $50,000 or 50% of your vested balance.
- Repayment Term: Generally 5 years, though longer for home purchases.
- Interest Rates: Often 1–2% above the prime rate (e.g., 5–8%).
- No Credit Check: Approval is based on your 401(k) balance, not credit score.
A 401(k) Loan Calculator simplifies the math, showing you exactly what you’ll pay each month and over time.
Pros and Cons of a 401(k) Loan
Before borrowing, weigh the benefits and risks:
Pros:
- Lower interest rates than personal loans or credit cards.
- No credit check required.
- Interest paid goes back to your 401(k).
Cons:
- Reduces retirement savings growth due to withdrawn funds.
- Risk of taxes and penalties if you leave your job and can’t repay.
- Missed employer matching contributions during repayment.
Use our calculator to quantify these costs and decide if a 401(k) loan is right for you.
A 401(k) loan can be a smart way to access funds, but it’s not without risks. With our 401k Loan Calculator, you can calculate your monthly payments in dollars, visualize costs with a clear chart, and make decisions that protect your financial future. Try it now to explore your borrowing options with confidence!
