401(k) – Borrowing Against It

Borrowing against your 401(K) might not always be the best idea. It depends on a number of variables, so we can’t tell you that you should or that you shouldn’t. We can give you a checklist of points to keep in mind, but beyond that, you’re going to have to rely on your own insight and judgment regarding whether or not you should take the risk and borrow against your 401(k). Here at PaydayLoansCashAdvance.com, we’ve gathered all of the information that you need in order to make an educated decision on whether or not it’s worth it for you to borrow against your 401(k).

Know Your Borrowing Limits

Generally speaking, you’re only allowed to borrow either fifty thousand dollars, or one half of your 401(k), whichever comes out to less money. You will have a total of five years, in most cases, to finish paying off your loan, although exceptions may be made if you used the loan to buy a home.

The Big Advantages of Borrowing Against Your 401(k)

The biggest advantage to borrowing against your 401(k) is that it’s a fairly simple process in comparison to most loans. You’re borrowing against your own money, so there are simply going to be far fewer hoops to jump through. There’s no lengthy waiting process or background checks, in most scenarios. You won’t even need a credit check, generally speaking.

Although most of these loans will involve a five year repayment plan, you can generally make early payments without fear of penalty and be done with the loan very early.

Best of all, the interest you pay might actually pay into your retirement account depending on what sort of arrangement you have going. This means that borrowing against your 401(k) can actually be an investment, even if that’s not what you’re taking the loan out for in the first place.

The Big Disadvantages of Borrowing Against Your 401(k)

If we’ve painted a fairly rosy picture of borrowing against your 401(k), rest assured, it’s not all a walk in the park, and there are some real disadvantages as well as some great advantages. In fact, a good majority of financial advisers recommend against it as a general rule.

One of the biggest is that if you take out a loan on yourself, you’re going to wind up paying taxes once for your initial investment and once on the loan. If you have a significant amount to borrow against, then you may already be paying enough in taxes that you’d rather not have to deal with this.

Perhaps the worst disadvantage when you borrow against 401(k) is that there’s simply no wiggle room whatsoever on your payment plan. You can make early payments, but the payments are generally deducted from your take-home pay, giving you less freedom to manage your own finances.

A big downside here is that, if you wind up losing your job, you may wind up having to pay your loan back as one big, lump sum, which is difficult for someone who is freshly out of a job to afford.

It’s ultimately up to you to decide whether or not it’s worth it to borrow against your 401(k). For some, the addition of extra taxes and the strict repayment plans are enough to outweigh the ease of borrowing money. If you’re considering this type of loan, it may be wise to look into other means of borrowing, first. It may be wiser to borrow from a private lender or credit company or from a local bank. Explore all of your options and make sure that you’re making the best possible choice before borrowing against your 401(k).

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