The astonishingly high risk of a 401(k) loan

If anyone tells you a 401(k) loan is a cheap way to borrow, they are both right and very, very wrong.

401(k) loan interest rates are low. But the way many Americans repay them spells disaster.

In my latest for the Associated Press, how a reckless 401(k) loan could turn out to be the most expensive money you’ll ever borrow.

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Comments

  1. Johanna says:

    The monthly payment on a five-year, $10,000 loan at 5.75% is only $192. I’m not sure why it makes sense to assume that Jessica would drop her monthly contributions from $300 to $0 in order to make a $192 monthly payment.

    • Liz Weston says:

      Some plans don’t allow contributions when there’s an outstanding loan. When they do, borrowers still have to earn more than the amount of the repayment amount, since it’s after tax, and that could impact how much they save. You can use the calculator to try out different scenarios: http://www.ncpa.org/401/d401kwa1.php

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