Revealing Facts Related To 401k Loan

by Smith George Retirement Plan Specialist

Facts about 401k loans are discussed in detail here. A single go through from start to finish is essential if you are considering applying for one. Know them well and then make the final decision.

Are paying high interest rate for your credit card bails? Here you get a solution to save your hard earned dollars from being drained out. With 401k loan, you can meet your need and consequently get relaxed from over-expenditure. Borrowing loans against a 401k plan is permissible by certain employers; it’s risky though for employee. Here, I have tried to provide you all the facts that are both known and unknown but essential before you sign on the dotted lines on loan agreement papers.

Here are the facts-

ü Being an employee you can apply loan against your 401k plan. However, the maximum amount can go up to $50,000 or the half of the total retirement savings balance. The time for repayment begins as soon as the next pay period begins. You pay back your amount of loans by deducting it from your paycheck automatically.

ü If you are applying for loan to buy a home, then only the length of the time for loan repayment goes longer. Otherwise, the duration of time is five years or less. Specifically, if you are applying for such 401k loans for buying a home, be sure of the risk termination just below the application.

ü With 401k loans, you have to undergo no credit status check. In fact, you are not borrowing a loan; you are just getting your retirement savings at a premature stage. No credit check is needed for that.

ü Irrespective of your credit score, you can now get a competitive rate of interest. This way, you get the best scope to pay back your loans. Unlike any other form of loan, you are not paying the principal added to interest to bank, rather saving it for a secured retirement.

ü No process or application fees you pay to apply 401k loans. It’s not a traditional loan. That’s why you just pay either no or minimal process or application fee.

These facts are more advantages for an employee. However, some cons are there for 401k loan applicants.

· When you withdraw a certain amount from your retirement saving, you stop the growth of your investment till the time, you pay back the amount to your plan. You lose the steady and potential growth of your investment.

· Once you lose your job or leave it, you have to pay the due amount of your loans with next 60days. In case, you fail to do so, you would have to pay a bigger amount which is already taxed and you have to pay it anyways.

· Due to this risk involved with 401k loan plan, it always recommend by financial advisors to avoid such borrowing unless you have got any emergency. If emergency too holds a significant impact on your life, applying for 401k plans is the right option.

To conclude-

Here are some of the facts which benefits and harms an employee when he applies for 401k loan. For a better understanding and wise consideration, this has been jotted down here. Be sure if your loan is going to help you or not and if you find no other alternative than to apply for this type of loan, go ahead being sure that you would pay it back under any circumstances.