Have you refinanced your home into oblivion? Tapped out every available money resource with a myriad of loans and credit cards? There is one last option: borrowing from your 401(k). If you've never heard of this option, it's because until recently, it just wasn't done that frequently. But with the market still not fully recovered, and people desiring to cut their high interest debt, more folks are discovering this alternative lending source.
You can take out up to $10,000 towards the purchase of a primary residence. This is not a loan and it never has to be repaid and there are no penalties applied.
A 401(k) loan does not appear on your credit report. They are not reported to Experian, and do not become a part of your credit history.The interest on these loans is some of the lowest out there.You're paying yourself the interest, not some bank.
You'll get your money more quickly than if you were using another means of borrowing.
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 through the usual long, painful credit approval process, because in effect, you are the lender.
No assets or collateral are needed to secure the loan.
The biggest con is that you are forfeiting the accrued interest you would earn if your money stayed in the 401(k).
Calculated over the long term, it can cost tens (even hundreds) of thousands of dollars in potential gain.
Unlike a home equity loan, the interest is not tax deductible.Some plans do not allow contributions to the 401(k) for the period of the loan.