When you take out a 401(k) loan, it might feel like you’re simply taking money out of your account or borrowing from yourself. But a 401(k) loan is a real loan, meaning that you’ll have a monthly payment schedule, a stated interest rate and a loan maturity date.
Fortunately, most 401(k) administrators make the process fairly easy and straightforward, meaning you’ll be made aware of all of the terms of your loan, with automatic payments established. However, you should understand when your loan comes due, the amount of your monthly payment, how much interest you’re paying and the penalties involved if you fail to meet your obligations.
Although it may feel like you’re simply taking money out of your own emergency fund or bank account, there are actually a lot of rules attached to your 401(k) loan, and you should learn and understand them all.