Revealing Facts Related To 401k Loan
Facts about
401k loans are discussed
in detail here. A single go through from start to finish is essential if you
are considering applying for one. Know them well and then make the final
decision.
Are paying high interest rate for your credit card bails? Here you get a solution to save your hard earned dollars from being drained out. With 401k loan, you can meet your need and consequently get relaxed from over-expenditure. Borrowing loans against a 401k plan is permissible by certain employers; it’s risky though for employee. Here, I have tried to provide you all the facts that are both known and unknown but essential before you sign on the dotted lines on loan agreement papers.
Here are the facts-
ü Being
an employee you can apply loan against your 401k plan. However, the maximum amount
can go up to $50,000 or the half of the total retirement savings balance. The time
for repayment begins as soon as the next pay period begins. You pay back your
amount of loans by deducting it from your paycheck automatically.
ü If
you are applying for loan to buy a home, then only the length of the time for loan
repayment goes longer. Otherwise, the duration of time is five years or less. Specifically,
if you are applying for such 401k loans for buying a home, be sure of the risk
termination just below the application.
ü With
401k loans, you have to undergo no credit status check. In fact, you are not borrowing a loan; you are
just getting your retirement savings at a premature stage. No credit check is needed
for that.
ü Irrespective
of your credit score, you can now get a competitive rate of interest. This way,
you get the best scope to pay back your loans. Unlike any other form of loan,
you are not paying the principal added to interest to bank, rather saving it
for a secured retirement.
ü No
process or application fees you pay to apply 401k loans. It’s not a traditional
loan. That’s why you just pay either no or minimal process or application fee.
These facts are more advantages
for an employee. However, some cons are there for 401k loan applicants.
·
When you withdraw a certain amount from your
retirement saving, you stop the growth of your investment till the time, you
pay back the amount to your plan. You lose the steady and potential growth of
your investment.
·
Once you lose your job or leave it, you
have to pay the due amount of your loans with next 60days. In case, you fail to
do so, you would have to pay a bigger amount which is already taxed and you
have to pay it anyways.
·
Due to this risk involved with 401k loan plan, it always
recommend by financial advisors to avoid such borrowing unless you have got any
emergency. If emergency too holds a significant impact on your life, applying
for 401k plans is the right option.
To conclude-
Here are some of the facts
which benefits and harms an employee when he applies for 401k loan. For a
better understanding and wise consideration, this has been jotted down here. Be
sure if your loan is going to help you or not and if you find no other
alternative than to apply for this type of loan, go ahead being sure that you would pay it back under any circumstances.