Know This Before You Borrow Against Your 401k

Sure you are paying interest to yourself by taking a loan out this way, but there is a lot more to consider than that one positive.

A 401k loan is not "free money" and here's everything you need to know before you pull out a loan.

 

  When you pull money from your 401K you are taking tax-deferred long-term compound growth and stopping your growth.

In really simple terms, 401k loans are not good loans.

They are different from collateralized loans (Think home equity).

If a collateralized loan functioned like a 401k loan the bank would come and break apart a room from your house and you would never get it back. There are significant losses.
 

You have to consider the bigger picture of how much borrowing against your 401k hurts your long-term growth.

 

Step back and evaluate how a 401k loan impacts everything you're doing.

Look at your whole life.

Loans, savings, insurance and goals all have to be considered before puling your money out from a 401k loan.