If you've found yourself in a tight spot and need some money quickly, your 401(k) can provide some relief. But this is a loan with many drawbacks and one that many experts believe should be considered only as a last resort.
If you still think your 401(k) is your best option after answering these questions, proceed carefully.
Borrowing from your 401(k) has some advantages:
You pay yourself back at a low interest rate, typically 1 percent or 2 percent above prime. Unlike a mortgage, which has recording costs, the transaction costs of borrowing from your plan are generally minimal. Plus, there's no credit check. Repaying the loan through payroll deductions is fairly painless.
In most 401(k) plans, you can borrow up to 50 percent of your vested balance, but not more than $50,000. You have to pay the money back with interest over five years (longer if the loan is for a principal residence).
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