401(k) Loans: Should You Borrow Against Your Retirement?

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With a 401(k) loan, you can access the money you’ve set aside for retirement in a 401(k) account. This makes it a little different from a standard loan since you’re borrowing your own money that you’ve saved. Additionally, the interest payments you’ll make while paying back the loan will go into your 401(k) account.

However, keep in mind that getting a 401(k) loan could affect your overall retirement savings.

Here’s what you should know about 401(k) loans:

401(k) loan rules

There are a few specific rules that govern 401(k) loans, including:

• Maximum loan amount: Borrowers can’t take more than 50% of their vested account balance or $50,000, whichever is less. However, this 50% rule is waived for account holders with a vested account balance of $10,000 or less — in this case, you can borrow up to $10,000.
• Repayment term: You’ll generally have to repay the loan within five years as well as make payments on at least a quarterly basis. However, this five-year rule can be waived if you’re using the money to buy a primary residence.
• Interest rate: The interest rate on a 401(k) loan is usually a certain percentage over the prime rate. For example, if the interest rate is 1% over the prime rate — which is set at 3.25% as of April 2021 — your rate on a 401(k) loan would be 4.25%. If you took out a 401(k) loan for $50,000 and repaid it over five years, you’d pay $5,589 in interest.
• Payments: You’ll make fixed payments over the term of a 401(k) loan.
• Employment requirements: If you stop working for the employer sponsoring your 401(k) plan before you’ve paid off the loan, you’ll typically have to repay the loan in full by the time your next federal tax return is due. Otherwise, your 401(k) loan will generally be considered an early withdrawal, which means you’ll have to pay federal income tax on the withdrawal amount plus a 10% penalty.

Learn More: Where to Get a Personal Loan

How coronavirus has affected 401(k) loans

The CARES Act, which was signed into law on March 27, 2020, made some changes to 401(k) loan options that were only in effect for the 2020 calendar year.

Borrowers negatively impacted by the COVID-19 pandemic were eligible for certain benefits on 401(k) loans, including:

• Maximum loan amount: Qualified borrowers could take up to 100% or $100,000 of the vested balance — whichever was less — through Sept. 22, 2020.
• Repayment term: Borrowers who took out a loan on or after March 27, 2020, and had payments due between March 27, 2020, and Dec. 31, 2020, could have payments postponed for up to one year.

However, these provisions of the CARES Act have now expired, and all new 401(k) loans must follow the original rules and guidelines.

Check Out: Emergency Loans: How to Get a Personal Loan Fast

401(k) loans: Pros and cons

While getting a 401(k) loan might help certain people, it isn’t the right choice for everyone. Here are a few benefits and drawbacks to consider:

Pros of 401(k) loans

• Credit check not required: Since you’re essentially borrowing money from yourself, you won’t have to undergo a credit check to get a 401(k) loan. This can be helpful for borrowers with poor credit who can’t qualify for other types of loans.
• Doesn’t affect your credit: A 401(k) loan isn’t reported to the credit bureaus, which means it won’t have any bearing on your credit.
• Could get a lower interest rate: Depending on your credit, you might get a lower interest rate on a 401(k) loan compared to a personal loan.

Learn More: How to Get a Personal Loan With Fair Credit

Cons of 401(k) loans

• Loss of investment gains: The biggest issue with a 401(k) loan is that you’ll lose overall investment gains by taking money out of the account. Additionally, because 401(k) loans have low interest rates, you might not pay enough interest to make up for these lost gains.
• Limited loan amounts: You can only borrow up to 50% of your vested balance or $50,000, whichever is less. This might not be enough to cover your expenses.
• Employment requirements: Since you have to remain employed with the sponsoring employer until the loan is paid back, you might feel stuck in your job. And if you’re laid off before paying off the loan, you’ll have to pay the entire loan back the following year or face taxes and penalties, which could put you in a tough financial position.

If you decide to take out a 401(k) loan, be sure to consider how much that loan will cost you to repay over five years. This way, you can prepare for any added expenses. You can estimate how much you’ll pay for a loan using our personal loan calculator below.

Check Out: How to Get a Fast Personal Loan for Quick Cash

401(k) loans vs. personal loans

Borrowing from your 401(k) isn’t the only way to get access to quick cash when you need it. Another option is taking out a personal loan, which might be a better choice in some cases.

You can generally use a personal loan for almost any personal expense, depending on the lender. The time to fund for a personal loan is usually about one week or less — though some lenders offer next- or even same-day loans for borrowers who are approved.

Here are some important points to keep in mind when comparing 401(k) loans vs. personal loans:

If you want to protect your retirement savings, a personal loan could be a better choice compared to a 401(k) loan. Before you borrow, be sure to consider as many personal loan lenders as possible to find the right loan for you.

Credible makes this easy — you can compare your prequalified rates from our partner lenders in the table below in two minutes.

Lender	Fixed rates	Loan amounts	Min. credit score	Loan terms (years)
Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.	7.99% – 29.99% APR	$10,000 to $50,000	Not disclosed by lender	2, 3, 4, 5
Fixed APR: 7.99% – 29.99% APR Min. credit score: Does not disclose Loan amount: $10,000 to $50,000 Loan terms (years): 2, 3, 4, 5 Time to fund: If approved, funds sent within 24-72 hours† Fees: Origination fee Discounts: No Eligibility: Available in all states except CO, CT, HI, KS, NH, NY, ND, OR, VT, WV, WI, and WY Customer service: Phone Soft credit check: Yes Min. Income: None Loan Uses: Debt consolidation, home improvement, wedding, travel, medical expenses, and other purposes
Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.	9.95% – 35.99% APR	$2,000 to $35,000**	550	2, 3, 4, 5*
Fixed APR: 9.95% – 35.99% APR Variable APR: N/A Min. credit score: 550 Loan amount: $2,000 to $35,000** Loan terms (years): 2, 3, 4, 5* Time to fund: As soon as the next business day (if approved by 4:30 p.m. CT on a weekday) Fees: Origination fee Discounts: Autopay Eligibility: Available in all states except CO, IA, HI, VT, NV NY, WV Customer service: Phone, email Soft credit check: Yes Loan servicer: Avant Loan Uses: Debt consolidation, emergency expense, life event, home improvement, and other purposes Min. Income: $1,200 monthly
Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.	7.99% – 15.19% APR	$10,000 to $50,000	700	3, 4, 5, 6
Fixed APR: 7.99% – 15.19% APR Variable APR: N/A Min. credit score: 700 Loan amount: $10,000 to $50,000 Loan terms (years): 3 to 6 Time to fund: Next business day Fees: No prepayment penalty Discounts: None Eligibility: Available in all 50 states Customer service: Phone Soft credit check: Yes Min. Income: Does not disclose Loan Uses: Debt consolidation, home improvement, self-employment, and other purposes
Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.	8.99% – 35.99% APR	$5,000 to $35,000	600	2, 3, 4, 5
Fixed APR: 8.99% – 35.99% APR Variable APR: N/A Min. credit score: 600 Loan amount: $2,000 to $50,000 Loan terms (years): 2, 3, 4, 5 Time to fund: As soon as 1 to 3 business days after successful verification Fees: Origination fee Discounts: None Eligibility: Available in all states except DC, IA, VT, and WV Customer service: Phone Soft credit check: Yes Loan servicer: Best Egg and Blue Ridge Bank Min. Income: None Loan Uses: Credit card refinancing, debt consolidation, home improvement, and other purposes
Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.	6.99% – 24.99% APR	$2,500 to $35,000	660	3, 4, 5, 6, 7
Fixed APR: 6.99% – 24.99% APR Min. credit score: 660 Loan amount: $2,500 to $40,000 Loan terms (years): 3, 4, 5, 6, 7 Time to fund: As soon as the next business day after acceptance Fees: Late fee Discounts: None Eligibility:  Available in all 50 states Customer service: Phone Soft credit check: Yes Loan Uses: Auto repair, credit card refinancing, debt consolidation, home remodel or repair, major purchase, medical expenses, taxes, vacation, and wedding
Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.	10.5% – 29.99% APR	$5,000 to $40,000	640	2, 3, 4, 5
Fixed APR: 10.5% – 29.99% APR Min. credit score: 640 Loan amount: $3,000 to $40,000 Loan terms (years): 2, 3, 4, 5 Time to fund: As soon as 2 to 5 business days after verification Fees: Origination fee Discounts: None Eligibility: Available in all states except MA and NV Customer service: Phone, email, chat Soft credit check: Yes Min. Income: $25,000 Loan Uses: Debt consolidation and credit card consolidation
Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.	8.3% – 35.89% APR	$1,000 to $40,000	600	3, 5
Fixed APR: 8.3% – 35.89% APR Min. credit score: 600 Loan amount: $1,000 to $40,000 Loan terms (years): 3, 5 Time to fund: Usually takes about 2 days† Fees: Origination fee Discounts: None Eligibility: Available in all 50 states Customer service: Phone, email Soft credit check: Yes Loan servicer: LendingClub Bank Min. Income: None Loan Uses: Debt consolidation, paying off credit cards, home improvement, pool loans, vacations, and other purposes
Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.	7.99% – 35.99% APR	$2,000 to $36,500	580	2, 3, 4, 5, 6
Fixed APR: 7.99% – 35.99% APR Min. credit score: 580 Loan amount: $2,000 to $36,500 Loan terms (years): 2, 3, 4, 5, 6 Time to fund: As soon as the next business day Fees: Origination fee Discounts: Autopay Eligibility: Available in all states except NV and WV Customer service: Phone, email Soft credit check: Yes Min. Income: $20,000 Loan Uses: Home improvement, consolidate debt, credit card refinancing, relocate, make a large purchase, and other purposes
Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.	5.99% – 23.99% APR	$5,000 to $100,000	660	2, 3, 4, 5, 6, 7 (up to 12 years for home improvement loans)
Fixed APR: 5.99% – 23.99% APR Min. credit score: 660 Loan amount: $5,000 to $100,000 Loan terms (years): 2, 3, 4, 5, 6, 7* Time to fund: As soon as the same business day Fees: None Discounts: Autopay Eligibility: Available in all states except RI and VT Customer service: Phone, email Soft credit check: No Loan servicer: LightStream Min. Income: Does not disclose Loan Uses: Credit card refinancing, debt consolidation, home improvement, and other purposes
Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.	18.0% – 35.99% APR	$1,500 to $20,000	None	2, 3, 4, 5
Fixed APR: 18.0% – 35.99% APR Min. credit score: None Loan amount: $1,500 to $20,000 Loan terms (years): 2, 3, 4, 5 Time to fund: As soon as 1 to 2 business days after approval Fees: Origination fee Discounts: None Eligibility: Must have photo I.D. issued by U.S. federal, state or local government Customer service: Phone, email Soft credit check: Yes Min. Income: Does not disclose
Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.	7.74% – 17.99% APR	$600 to $50,000 (depending on loan term)	660	1, 2, 3, 4, 5
Fixed APR: 7.74% – 17.99% APR Min. credit score: 660 Loan amount: $600 to $50,000* Loan terms (years): 1, 2, 3, 4, 5 Time to fund: 2 to 4 business days after verification Fees: None Discounts: None Eligibility: Does not disclose Customer service: Phone, email Soft credit check: No Min. Income: Does not disclose Loan Uses: Debt consolidation, home improvement, transportation, medical, dental, life events
Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.	6.99% – 35.99% APR	$2,000 to $50,000	640	2, 3, 4, 5
Fixed APR: 6.99% – 35.99% APR Min. credit score: 640 Loan amount: $2,000 to $50,000 Loan terms (years): 2, 3, 4, 5 Time to fund: As soon as one business day Fees: Origination fee Discounts: None Eligibility: Available in all states except IA, ND, WV Customer service: Phone, email Soft credit check: Yes Min. Income: None Loan Uses: Debt consolidation, home improvement, vehicles, small business, new baby expenses, and other purposes
Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.	7.99% – 23.43% APR10	$5,000 to $100,000	Does not disclose	2, 3, 4, 5, 6, 7
Fixed APR: 7.99% – 23.43% APR10 Min. credit score: Does not disclose Loan amount: $5,000 to $100,000 Loan terms (years): 2, 3, 4, 5, 6, 7 Time to fund: 3 business days Fees: None Discounts: Autopay Eligibility: Available in all states except MS Customer service: Phone, email Soft credit check: Yes Min. Income: Does not disclose Loan Uses: Solely for personal, family, or household uses
Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.	11.69% – 35.93% APR7	$1,000 to $50,000	560	3 to 5 years 8
Fixed APR: 11.69% – 35.93% APR7 Min. credit score: 560 Loan amount: $1,000 to $50,000 Loan terms: 3 to 5 years 8 Time to fund: Within one day, once approved9 Loan types: Debt consolidation, pay off credit cards, home improvements, unexpected expenses, home and auto repairs, weddings, and other major purchases Fees: Origination fee Discounts: Autopay Eligibility: A U.S. citizen or permanent resident; not available in DC, SC, WV Customer service: Phone, email Soft credit check: Yes
Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.	8.24% – 35.97% APR	$1,000 to $50,000	560	2, 3, 5, 6
Fixed APR: 8.24% – 35.97% APR Min. credit score: 560 Loan amount: $1,000 to $50,000* Loan terms (years): 2 to 7 Time to fund: Within a day of clearing necessary verifications Fees: Origination fee Discounts: Autopay Eligibility: Available in all states except West Virginia Customer service: Email Soft credit check: Yes Min. Income: Does not disclose Loan Uses: Debt consolidation, credit card refinancing, home improvement, and other purposes
Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.	5.4% – 35.99% APR4	$1,000 to $50,0005	580	3 to 5 years4
Fixed APR: 5.4% – 35.99% APR4 Min. credit score: 580 Loan amount: $1,000 to $50,0005 Loan terms (years): 3 to 5 years4 Time to fund: As fast as 1 business day6 Fees: Origination fee Discounts: None Eligibility: Available in all 50 states Customer service: Phone, email Soft credit check: Yes Min. Income: $12,000 Loan Uses: Payoff credit cards, consolidate debt, take a course or bootcamp, relocate, make a large purchase, and other purposes
Compare rates from these lenders without affecting your credit score. 100% free!Compare Now
All APRs reflect autopay and loyalty discounts where available | LightStream disclosure | 10SoFi Disclosures | Read more about Rates and Terms

Learn More: Everything You Should Know Before Taking Out a Tax Refund Advance

Other alternatives to a 401(k) loan

If a 401(k) loan or personal loan don’t seem right for you, here are a few other alternatives to consider:

• Credit card: Depending on how much you need to borrow, a credit card might help you cover the expense. Some cards offer a 0% APR introductory period, which means you could avoid paying interest if you can repay your balance by the end of the period. However, if you can’t pay off the card in time, you could get stuck with some hefty interest charges.
• Home equity loan: If you’re a homeowner, you might be able to tap into the equity of your home through a home equity loan. Because your home acts as collateral for this type of loan, you might get a lower interest rate compared to a personal loan. But keep in mind that if you default on the loan, you risk losing your home.
• HELOC: A home equity line of credit (HELOC) is another way to access your home’s equity. But unlike a home equity loan, a HELOC is a type of revolving credit that you can access as you need. Just remember that if you can’t keep up with your payments, you could lose your home.

Check Out: How to Get a Personal Loan With a 600 Credit Score

Compare multiple options before borrowing from retirement savings

Taking a loan from your 401(k) is essentially borrowing from your future self. Even if you pay off your 401(k) loan with no issues, you could end up with less money during retirement due to the loss of compounding interest over the five years it takes you to repay the loan.

This reduction in retirement assets could become even worse if you’re terminated before fully paying off the loan or unable to continue making loan payments.

This is why it’s important to compare all of your loan options before deciding to borrow from your retirement savings vehicle. Though the interest rate and fees might seem initially higher on a personal loan or other alternative, the cost to your future could be much lower.

If you decide to take out a personal loan, remember to consider as many lenders as you can to find a loan that suits your needs. This is easy with Credible: You can compare your prequalified rates from multiple lenders in two minutes — without affecting your credit.

Find Your Loan:

About Rates and Terms: Rates for personal loans provided by lenders on the Credible platform range between 5.40%-35.99% APR with terms from 12 to 84 months. Rates presented include lender discounts for enrolling in autopay and loyalty programs, where applicable. Actual rates may be different from the rates advertised and/or shown and will be based on the lender’s eligibility criteria, which include factors such as credit score, loan amount, loan term, credit usage and history, and vary based on loan purpose. The lowest rates available typically require excellent credit, and for some lenders, may be reserved for specific loan purposes and/or shorter loan terms. The origination fee charged by the lenders on our platform ranges from 0% to 10%. Each lender has their own qualification criteria with respect to their autopay and loyalty discounts (e.g., some lenders require the borrower to elect autopay prior to loan funding in order to qualify for the autopay discount). All rates are determined by the lender and must be agreed upon between the borrower and the borrower’s chosen lender. For a loan of $10,000 with a three year repayment period, an interest rate of 7.99%, a $350 origination fee and an APR of 11.51%, the borrower will receive $9,650 at the time of loan funding and will make 36 monthly payments of $313.32. Assuming all on-time payments, and full performance of all terms and conditions of the loan contract and any discount programs enrolled in included in the APR/interest rate throughout the life of the loan, the borrower will pay a total of $11,279.43. As of March 12, 2019, none of the lenders on our platform require a down payment nor do they charge any prepayment penalties.

About the author

Emily Guy Birken

Emily Guy Birken is a Credible authority on student loans and personal finance. Her work has been featured by Forbes, Kiplinger’s, Huffington Post, MSN Money, and The Washington Post online.

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