Should you borrow from your 401(k)? See your monthly payment, the interest you pay to yourself, and the true opportunity cost of taking money out of the market.
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Monthly Payment
$0
Amortized over the loan term
Total Interest (Paid to Self)
$0
Goes back into YOUR account
Total Repaid
$0
Principal + interest over the term
Maximum Loan Allowed
$0
min($50,000, 50% of vested balance)
Opportunity Cost (Lost Growth)
$0
Growth your borrowed money misses
What $P Would Grow To
$0
Borrowed amount at assumed return
Personal Loan Payment
$0
Same amount & term at personal APR
Personal Loan Interest (to Bank)
$0
Interest paid to a bank, not you
True Cost of 401(k) Loan
$0
Interest + lost investment growth
401(k) vs Personal Loan
$0
Positive = 401(k) loan is cheaper
🏦 401(k) Loan
Monthly payment $0
Interest (paid to self) $0
Lost growth (opportunity cost) $0
True cost $0
🏦 Personal Loan
Monthly payment $0
Interest (paid to bank) $0
Total repaid $0
Lost growth $0
Enter your details and press Calculate to see the comparison.
📊 401(k) Loan Cost Analysis
$0
Based on your inputs, this is the estimated cost of borrowing from your 401(k).
📝 Step-by-Step Calculation
Real-World 401(k) Loan Examples
📋 Standard 5-Year Loan — $20,000
Sam has a vested 401(k) balance of $100,000 and borrows $20,000 at 6.5% for 5 years. Assumed market return 7%, personal loan APR 11%.
Maximum allowed:$50,000 (min of $50,000 and 50% × $100,000).
Monthly payment:$391.33
Total interest (paid to self):$3,479.80
Lost growth (opportunity cost):$8,051.03 — the $20,000 would have grown to $28,051.03 at 7%.
Personal loan at 11%: payment $434.84, interest paid to the bank $6,090.40
True cost of the 401(k) loan:$11,530.83 (interest + lost growth)
The 401(k) loan's cash interest is cheaper, but adding lost growth makes its true cost about $5,440 higher than the personal loan — long terms at rates below your expected return are expensive.
⚡ Short 3-Year Loan — $10,000
Alex has a vested balance of $30,000 and borrows $10,000 at 5% for 3 years. Assumed market return 7%, personal loan APR 11%.
Maximum allowed:$15,000 (50% × $30,000).
Monthly payment:$299.71
Total interest (paid to self):$789.56
Lost growth:$2,250.43 — the $10,000 would have grown to $12,250.43 at 7%.
Personal loan at 11%: payment $327.39, interest to the bank $1,786.02
True cost of the 401(k) loan:$3,040.00
Even a 3-year loan carries opportunity cost because the money misses market growth for the whole term — keep 401(k) loans short and small.
⚠️ Clamped Loan & Over-Long Term
Jordan has a vested balance of $40,000 and requests $30,000 at 6% for 7 years. Assumed market return 7%, personal loan APR 11%.
Maximum allowed:$20,000 (50% × $40,000 = $20,000, less than $50,000) — the request is clamped to $20,000.
Term warning:7 years exceeds the 5-year standard (15 years is allowed only for a primary-residence purchase).
Monthly payment:$292.18 on the clamped $20,000
Total interest (paid to self):$4,543.13
Lost growth:$12,115.63 — the $20,000 would have grown to $32,115.63 at 7%.
True cost:$16,658.76 vs personal loan interest of $8,765.80
Long terms make opportunity cost balloon — here the 401(k) loan's true cost is nearly $7,893 more than the personal loan.
Understanding 401(k) Loans
A 401(k) loan lets you borrow from your own retirement account. You repay with interest — but the interest goes back into your own account, not to a bank. The catch: while the money is out of the market, it misses out on investment growth.
Key Formulas
Max Loan = min($50,000, 50% × Vested Balance)
IRS limit — you cannot borrow more than the lesser of these two amounts
M = P × r × (1+r)ⁿ / ((1+r)ⁿ − 1)
Monthly payment, where r = annual rate ÷ 12 and n = total months
Total Interest = M × n − P
All of this interest is paid to YOURSELF, back into your 401(k)
Opportunity Cost = P × ((1 + 0.07)^years − 1)
The lost growth on the borrowed amount at a 7% assumed market return
True Cost = Interest Paid to Self + Lost Growth
Compare this against personal-loan interest to find the cheaper option
Step-by-Step Process
1
Check your limit: Your maximum loan is the lesser of $50,000 or 50% of your vested balance. If you have an existing 401(k) loan, it counts against this limit.
2
Confirm the term: The standard is 5 years (15 for a primary-residence purchase), with repayments deducted from your paycheck.
3
Find the monthly rate: Divide your annual loan rate by 12. Typical 401(k) loan rates are prime + 1% — far below most personal loan rates.
4
Compute the monthly payment with the standard amortization formula, then multiply by the months for total repayment and interest.
5
Estimate the opportunity cost: The borrowed money would have grown at your expected market return (we assume 7%) — that forgone growth is a real cost.
6
Compare alternatives: Add interest + lost growth for the true cost, then compare with the interest a personal loan would charge.
401(k) Loan Rules to Know
Interest is paid to yourself: Unlike a bank loan, the interest you pay goes back into your own retirement account.
Default risk: If you leave your job, the balance is typically due within 60 days. If you can't repay, it becomes a taxable distribution — possibly with the 10% early-withdrawal penalty.
Repayments are after-tax: You repay with after-tax dollars, taxed again when withdrawn in retirement.
Missed contributions: While repaying, you may reduce or pause contributions, slowing retirement growth further.
Check your plan: Not all plans allow loans, and some restrict them to hardship purposes. Always read your plan document.
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Complete Repayment Breakdown
See your exact monthly payment, total repayment, and the interest you pay back into your own account.
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Opportunity Cost Revealed
Understand the hidden cost: how much your borrowed money would have grown if it had stayed invested at a 7% market return.
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Loan vs. Personal Loan
Compare the true cost of a 401(k) loan — interest plus lost growth — against a personal loan at your own APR.
A 401(k) loan lets you borrow against your own retirement savings. The IRS caps the amount at the lesser of $50,000 or 50% of your vested balance (minus any existing outstanding loan balance). Because it's your own money, there's no credit check, and the rate is usually set by your plan — typically prime rate plus 1%.
The key difference from a bank loan: the interest you pay goes back into your own 401(k) account. That makes it less painful — but it is not free money. You repay with after-tax dollars that are taxed again at withdrawal, and while the balance is outstanding, those dollars are not earning market returns.
The Standard Repayment Structure
Most plans require level amortized payments — the same amount each pay period, deducted from your paycheck — over a maximum term of 5 years. The only exception is a primary-residence purchase, repayable over up to 15 years. If your term exceeds 5 years for any other purpose, this calculator warns you because your plan may not permit it.
Max Loan = min($50,000, 50% × Vested Balance)
The legal ceiling — most plans also enforce their own limits on top of this
The Hidden Cost: Lost Investment Growth
Here's what most people miss: while you're repaying your 401(k) loan, the borrowed money is out of the market. Instead of compounding at your portfolio's expected return, it earns only the loan interest rate you're paying yourself. Over the life of the loan, the difference can be significant.
This calculator assumes a 7% average annual market return — a common long-term equity assumption. The opportunity cost is what the borrowed amount would have grown to at that return, minus the amount borrowed. For a $10,000 loan over 5 years, that's about $4,026; over 10 years, about $9,672. Longer terms and larger loans make borrowing far more expensive.
Opportunity Cost = P × ((1 + 0.07)^years − 1)
What P would grow to at 7% over the term, minus P — the true cost of borrowing
Practical guidance: Borrow only what you need, repay as fast as you can, and keep contributing while you repay. If contributions stop, a 401(k) loan costs you twice — lost growth on the loan plus lost growth on the skipped contributions.
401(k) Loan vs. Personal Loan: Which Is Cheaper?
Both options have real costs, and the cheaper one depends on your numbers. A personal loan charges interest to a bank — typically 8% to 15% APR — but your retirement account keeps growing untouched. A 401(k) loan charges a lower rate (prime + 1%) and pays the interest to you, but the borrowed money stops compounding while it's out of the market.
When a 401(k) Loan Makes Sense
Short terms: The shorter the loan, the smaller the lost growth. A 1–2 year loan at prime + 1% is usually very cheap.
Poor credit: If a personal loan would cost you 15%+ APR, the 401(k) loan rate almost certainly wins.
No other access: Home equity, family loans, and 0% credit card offers aren't always available.
When a Personal Loan May Be Better
Long terms: The opportunity cost compounds with time. A 5-year 401(k) loan at 7% assumed return can easily carry a higher true cost than an 11% personal loan.
Job-change risk: If you might leave your employer, a personal loan avoids the 60-day repayment trap and the tax bomb of a defaulted 401(k) loan.
You'd pause contributions: If repaying the 401(k) loan would make you stop contributing, the personal loan may protect your retirement growth.
True Cost = Interest Paid to Self + Lost Growth
Compare this with personal-loan interest to decide which route is genuinely cheaper
Frequently Asked Questions
How much can I borrow from my 401(k)?
The IRS limits 401(k) loans to the lesser of $50,000 or 50% of your vested account balance. With a $40,000 vested balance you can borrow at most $20,000; with $100,000 the cap is $50,000. Any outstanding loan balance counts against the limit, and your plan may impose its own lower cap. This calculator clamps your request to the legal maximum and warns you when it does.
What happens if I leave my job with an outstanding 401(k) loan?
This is the biggest risk of a 401(k) loan. When you leave your employer, most plans require you to repay the outstanding balance within 60 days (some allow until the next tax-filing deadline). If you can't repay, the balance becomes a taxable distribution — you owe ordinary income tax on it, plus the 10% early-withdrawal penalty if you're under 59½. A large default can create a sudden five-figure tax bill, which is why experts warn against borrowing before a likely job change.
Is a 401(k) loan cheaper than a personal loan?
It depends. On the surface yes: a 401(k) loan's rate (typically prime + 1%) is usually well below personal-loan APRs of 8–15%, and the interest is paid to yourself. But the borrowed money also misses market growth while it's out of your account. Once you add that lost growth, a long 401(k) loan can be more expensive than a personal loan. This calculator shows the interest, the lost growth, and the true cost so you can compare honestly. Rule of thumb: short, small 401(k) loans tend to win; long ones often lose.
Do I pay taxes on a 401(k) loan?
Not when you take the loan — borrowing isn't a taxable event as long as you repay on schedule. But there are two catches: you repay with after-tax dollars, and that money is taxed again when withdrawn in retirement — effectively double-taxing the interest portion. If you default (e.g., by leaving your job without repaying), the balance becomes a taxable distribution, plus the 10% early-withdrawal penalty if you're under 59½.
What happens if I can't repay my 401(k) loan?
Missing payments usually doesn't trigger immediate disaster — your plan treats you as being in default, and the unpaid balance becomes a deemed distribution, as if you withdrew the money. You'll owe income tax on the balance, plus the 10% penalty if you're under 59½, and the money is permanently gone from your retirement account. If you're struggling, talk to your plan administrator immediately — some plans allow re-amortization or catch-up payments before a default is declared.
Can I use a 401(k) loan to buy a house?
Yes — buying a primary residence is one of the few cases where the IRS allows a longer repayment term of up to 15 years instead of the standard 5. Many people use a 401(k) loan for a down payment, but the borrowed money misses market growth for up to 15 years, which can cost tens of thousands in lost compounding. And if you leave your employer with a large balance outstanding, you may face a big tax bill. A smaller down payment, a first-time homebuyer program, or a family gift is often the smarter first move.
⚠️ Disclaimer: This 401(k) Loan Calculator is for educational and informational purposes only. The calculations are estimates based on simplified assumptions, including a 7% assumed market return, and should not be considered financial, tax, or legal advice. Actual loan terms — interest rates, fees, repayment schedules, and availability — are set by your specific plan and vary by employer. Loan limits may be reduced by existing outstanding balances, and the tax treatment of a defaulted loan depends on your situation. Always review your plan document and consult a qualified financial advisor or tax professional before borrowing from your retirement account.