401k Loan Interest Rates Explained How Much Will You Pay

Are you thinking about borrowing from your 401(k) and asking, what is the interest rate on a 401(k) loan? Most retirement plans set the interest rate based on the current prime rate plus 1% or 2%, making the typical rate fall between 8% and 10%. This rate is relatively competitive compared to personal loans or credit cards.

The best part? When you repay the loan, the interest goes back into your own retirement account helping you recover some of the cost over time. You can usually borrow up to $50,000 or 50% of your vested balance, whichever is lower, and repayments are made through automatic payroll deductions over a period of up to five years.

However, if you leave your job before the loan is repaid, the balance may be due immediately. If unpaid, it could be taxed and penalized. Always review your plan’s terms carefully.