Many employers provide 401k plans for their employees. A 401k plan is a retirement savings plan where employees can save a portion of their pre-tax earnings. Taxes aren’t paid on the money until it is withdrawn from the account.
Some, but not all, 401k plans permit employees to take out a loan against the 401k. Just because you can, doesn’t mean you should. Here are the main things to consider before you take a loan against your 401k account.
Loans against 401k accounts come with all of the same formality as any other type of loan. There will be a loan agreement that sets forth the terms of the loan, the interest rate, and any fees associated with the transaction. Just because you are borrowing your own money, don’t assume you will get a great deal on the interest rate. The interest rate you will be charged will be comparable to the rate a conventional lender would charge for a similar-sized personal loan. If you have poor credit, however, you may get a better interest rate than you would at a bank.