If I take out a loan against my 401k will it affect my credit rating?
I'm thinking of buying a home and wanted to consolidate some bills beforehand and was wondering if this would have any neg affects.
2007-02-02 15:51:50 · 6 answers · asked by mbomar78 3 in Business & Finance ➔ Personal Finance
No, it won't affect your credit rating, nor will your credit normally be considered before the loan is approved. There's a couple of concerns however. Normally, if you borrow against your 401k, the amount of your 401k securing your loan will earn the interest you pay on the loan, but will not earn market returns. In other words, if you borrow $20K against your 401k, and the market goes up 20% next year, the $20k collateralized against your loan will not get the 20% return, it will get the 5% or whatever your loan rate is. The other concern, is that if you lose your job (or quit), normally the loan is considered payable in full immediately. If you cannot (or don't) pay it off, the 401K will be liquidated to the extent necessary to payoff the loan, this will be considered a non-approved early withdraw from your 401K, and you'll be responsible for the associated taxes plus and additional 10% penalty (if you're not 59 1/2 years old). It might make sense for you if the following are true: 1) the loan is small relative to your 401k balance (minimal affect on return), 2) you could pay the loan off if you suddenly lost your job, and 3) the loan is for a relatively short period of time.
Most financial advisors discourage borrowing against your 401k except in the most dramatic circumstances.
2007-02-02 17:08:19 · answer #1 · answered by Ron 2 · 0⤊ 0⤋
No it won't. It is your own money or fund that you are borrowing against. The real question is do you really want to put your own nest egg on the line for a home? I would just find a bank that will loan you the money without putting the 401k up for collateral. Don't risk what you have saved in the 401k!
2007-02-02 16:58:16 · answer #2 · answered by Jeremy M 2 · 0⤊ 0⤋
mathematically, that is extra advantageous to do the 401k loan. behaviorally, it could't be clever. One reason is while you are the form of individual who can not stay somewhat-priced and could run up the mastercard to its shrink lower back, you will no longer have performed the real earnings of the interest fee unfold. yet whilst the CC debt is nowhere close to the optimal you qualify for, so which you have a record of restraint in spending, yet purely look caught in this 8k in debt, then this is recommended to risk the non-public loan. yet one extra reason is that in case you lose your activity and finally end up having a judgement against you for the 8k from the CC company, they in all risk can not get at your 401K money. So, in case you may give up spending extra advantageous than you're making, the 401k works out extra affordable on paper. that is purely no longer that hardship-loose to have a individual who can not pay extra advantageous than the minimum on a card somewhat pay back the 401k loan the two.
2016-12-16 19:58:57 · answer #3 · answered by forgach 4 · 0⤊ 0⤋
No, it won't affect your credit rating. You are simply borrowing your own money. There is not even a credit check to lower the credit score.
2007-02-02 16:10:56 · answer #4 · answered by Brian G 6 · 0⤊ 0⤋
no i would not affect your credit.. but did you know you can use what u got in your 401k to put down on a house .. that would lower your house payments
2007-02-02 16:26:50 · answer #5 · answered by ? 5 · 0⤊ 0⤋
No, b/c it's your own money. You're not getting a loan from someone.
2007-02-02 16:08:10 · answer #6 · answered by rklst9pitt 3 · 0⤊ 0⤋