Thinking of Borrowing From Your 401k? Read this.....
Pros:
+ A 401(k) loan does not appear on your credit report.
+ The interest on these loans is some of the lowest out there—right now, 3-4 percent.
+ You’re paying yourself the interest, not a bank.
+ Since it’s a loan, you will not be charged the 10 percent early withdrawal penalties plus income taxes you would have to pay if you withdrew the money.
+ You don’t have to qualify for the loan because in effect, you are the lender.
+ You don't need to secure the loan with collateral or assets.
Cons:
- You are forfeiting interest you would earn if your money stayed in the 401(k).
-The interest is not tax deductible.
- Some plans do not allow contributions to the 401(k) for the period of the loan, check with your fund manager.
- If you lose or quit your job, the loan is often due in full in 30-60 days (some plans are open to renegotiating the loan terms. Find out before you sign.)
- If you default on the loan, it is considered a withdrawal and you will owe a 10 percent penalty plus a hefty tax payment.