I have always considered 401k loans to be a second tier option.
If you separate from your company you need to pay back the loan immediately.
The is the opportunity cost. What are you spending your money on that is going to delivery a higher risk adjusted return than what is in your 401k? Which takes me to my next point - why are you borrowing? Most of the 401k borrowing I have seen are people buying expensive toys. Or paying off and consolidating credit card debt. This is rational if people fix their behavior that caused them to rack up the credit card debt in the first place. They rarely do.
In short, most people who take out 401k loans do it for the wrong reasons.
I can make a modest case for a down payment on a home. Maybe for some type of bridge loan.
If you separate from your company you need to pay back the loan immediately.
The is the opportunity cost. What are you spending your money on that is going to delivery a higher risk adjusted return than what is in your 401k? Which takes me to my next point - why are you borrowing? Most of the 401k borrowing I have seen are people buying expensive toys. Or paying off and consolidating credit card debt. This is rational if people fix their behavior that caused them to rack up the credit card debt in the first place. They rarely do.
In short, most people who take out 401k loans do it for the wrong reasons.
I can make a modest case for a down payment on a home. Maybe for some type of bridge loan.
Statistics: Posted by alex_686 — Thu Jan 22, 2026 10:58 am — Replies 4 — Views 184