401(k) Loan Calculator

Calculate the true cost of borrowing from your 401(k). This calculator determines your monthly payment, total interest, and the often-overlooked opportunity cost from lost investment growth. See a side-by-side comparison of how your 401(k) balance could grow with and without a loan, helping you make a fully informed financial decision.

This tool is for anyone considering a 401(k) loan for a major expense like a down payment, debt consolidation, or an emergency. It helps you weigh the benefits of a lower interest rate against the long-term impact on your retirement savings. Before you borrow, compare the outcome here to the cost of a 401(k) early withdrawal or see how it affects your overall retirement plan with the main retirement calculator.

The results provide a complete picture of the loan's impact. You will see a loan impact score, a breakdown of the total true cost, a chart projecting your 401(k) balance over time, and a full month-by-month amortization schedule showing how your payments are applied to principal and interest.

Begin by entering the specifics of the loan you are considering. In the "Loan Details" section, input the Loan Amount you wish to borrow, the Interest Rate your plan charges, and the Loan Term in years. The interest rate for a 401(k) loan is typically set at the prime rate plus one or two percent.

Next, provide context about your retirement account under "Account Details." Enter your Current 401(k) Balance and your Expected Market Return. The market return is a crucial input for estimating the opportunity cost — the growth your money would have generated if it had remained invested. A higher expected return will result in a higher opportunity cost.

For a more precise estimate, open the advanced settings. Here you can add the plan's Origination Fee, a one-time setup charge, and any Missed Employer Match per year. Some plans suspend matching contributions while a loan is outstanding, which can be a significant hidden cost. If your plan continues to offer a match, you can leave this field at zero.

Once all your information is entered, click "Calculate" to see a detailed analysis of your loan's financial impact.

Loan Amount

This is the total dollar amount you intend to borrow from your 401(k) account. IRS rules generally limit 401(k) loans to the lesser of $50,000 or 50% of your vested account balance. Check with your plan administrator for the specific maximum amount you are eligible to borrow.

Interest Rate

Enter the annual interest rate your 401(k) plan will charge for the loan. This rate is usually tied to the prime rate and is set by your plan's rules. A key feature of 401(k) loans is that you pay this interest back to yourself, directly into your 401(k) account. However, this rate is often lower than the return you might have earned by keeping the money invested.

Loan Term

This is the repayment period for your loan, in years. Most 401(k) loans must be repaid within five years. An exception is often made for loans used to purchase a primary residence, which may have terms of up to 15 years or longer. A shorter term means higher monthly payments but less total interest paid and a lower opportunity cost.

Current 401(k) Balance

Your total current 401(k) account balance before taking the loan. This value is used as the starting point for the projection. The calculator will subtract the loan amount from this balance to model the "with loan" scenario. A larger starting balance can amplify the long-term impact of lost compounding. For a full projection of this balance, use the main 401(k) calculator.

Expected Market Return

This is the average annual rate of return you expect your 401(k) investments to earn. This is a critical assumption for calculating opportunity cost. The money you borrow is no longer invested, so it cannot generate returns. The difference between what it would have earned and the interest you pay back to yourself is the opportunity cost. A reasonable long-term estimate for a diversified stock portfolio is often between 6% and 8%, but you should adjust this based on your personal investment strategy and risk tolerance.

Origination Fee

This is a one-time administrative fee your plan may charge to set up the loan. These fees typically range from $50 to $150. While small, it is part of the total cost of borrowing and is included in the "Total True Cost" calculation.

Missed Employer Match

Enter the total annual employer matching contributions you will forfeit while the loan is active. Some employers suspend their match for employees with an outstanding loan. This can be one of the largest hidden costs of a 401(k) loan, as you are giving up free money. If your plan continues matching contributions, you can enter $0.

The calculator performs two main analyses to determine the true cost of a 401(k) loan.

First, it calculates the loan's repayment details using a standard amortization formula. It determines your fixed monthly payment based on the loan amount, interest rate, and term. It then generates a month-by-month amortization schedule, breaking down each payment into its principal and interest components. The sum of all interest payments gives you the Total Interest Paid back into your account.

Second, it runs a year-by-year projection to quantify the opportunity cost. It models two scenarios:

1. Without Loan: Your Current 401(k) Balance grows each year at the Expected Market Return.
2. With Loan: Your Current 401(k) Balance is immediately reduced by the Loan Amount. The remaining balance grows at the Expected Market Return. Each year, your loan repayments (both principal and interest) are added back to the balance. Any Missed Employer Match is subtracted. After the loan is repaid, the full balance resumes growing at the market return.

The Opportunity Cost is the difference between the final balance in the "Without Loan" scenario and the "With Loan" scenario at the end of the projection period.

Finally, the Total True Cost is calculated by summing the origination fee, the total missed employer match over the loan term, and the total opportunity cost. The interest paid is not included in this "true cost" because it is paid back to yourself, but the calculator shows it separately for transparency.

The calculator uses standard financial formulas for amortization and a year-by-year simulation for projections.

Monthly Payment

The monthly payment is calculated using the standard loan amortization formula.

monthly rate = interest rate / 100 / 12
total months = loan term years * 12
monthly payment = (loan amount * monthly rate * (1 + monthly rate)^total months) / ((1 + monthly rate)^total months - 1)

Amortization Schedule

For each month of the loan, the calculator determines the interest and principal portions of the payment.

interest for month = remaining loan balance * monthly rate
principal for month = monthly payment - interest for month
new remaining balance = remaining loan balance - principal for month

Opportunity Cost Projection

The calculator projects two balances year by year to find the opportunity cost.

balance without loan (year N) = balance without loan (year N-1) * (1 + expected market return)

# During loan repayment period
balance with loan (year N) = (balance with loan (year N-1) * (1 + expected market return)) + (annual loan payments) - (missed employer match)

# After loan is repaid
balance with loan (year N) = balance with loan (year N-1) * (1 + expected market return)

opportunity cost = final balance without loan - final balance with loan

Total True Cost

The total true cost combines all expenses and lost growth.

total missed match = missed employer match per year * loan term years
total true cost = origination fee + opportunity cost + total missed match

Borrowing from your 401(k) can seem like an easy solution for short-term cash needs, but it comes with significant trade-offs. Understanding both sides is essential before making a decision.

Pros of a 401(k) Loan

• Lower Interest Rates: The interest rate is often lower than personal loans or credit cards.
• You Pay Yourself Back: The interest you pay goes back into your own retirement account, not to a lender.
• No Credit Check: Your credit score is not a factor in qualifying for the loan.
• Convenience: The application process is typically simple and fast, managed through your plan administrator.

Cons of a 401(k) Loan

• Opportunity Cost: This is the biggest drawback. The money you borrow is out of the market, meaning you miss out on potential investment gains. If the market performs well, this lost growth can be far more costly than the interest you pay.
• Job Change Risk: If you leave or lose your job, most plans require you to repay the entire loan balance in a short period (e.g., 60-90 days). If you cannot, the outstanding balance is treated as a taxable distribution and may be subject to a 10% early withdrawal penalty if you are under 59½.
• Reduced Retirement Savings: Taking a loan can lead to a permanently smaller nest egg. Even after you repay it, your balance may never catch up to where it would have been.
• Double Taxation: You repay the loan with after-tax dollars. When you later withdraw that same money in retirement, it will be taxed again as ordinary income (assuming a traditional 401(k)).
• Potential for Paused Contributions: Some people reduce or stop their regular 401(k) contributions while repaying a loan, further slowing their retirement progress.

Before borrowing from your future, consider other options that may have fewer long-term consequences for your retirement.

• Home Equity Line of Credit (HELOC) or Home Equity Loan: If you are a homeowner with equity, these can offer competitive interest rates. The interest may also be tax-deductible if used for home improvements.
• Personal Loan: Unsecured personal loans from a bank or credit union are an option. While interest rates may be higher than a 401(k) loan, they do not put your retirement savings at risk.
• 0% APR Credit Card: For smaller, short-term needs, a credit card with an introductory 0% APR offer can be a good choice, provided you can pay off the balance before the promotional period ends.
• Negotiating a Payment Plan: If you are facing a large medical bill or other debt, contact the provider to see if you can arrange a payment plan. Many are willing to work with you to avoid collections.
• Tapping Your Emergency Fund: This is precisely what an emergency fund is for. Using cash savings avoids interest payments and keeps your retirement investments intact. If you don't have one, this situation highlights the importance of building one.
• Roth IRA Contributions: If you have a Roth IRA, you can withdraw your direct contributions (not earnings) at any time, for any reason, tax-free and penalty-free. This is often a much better option than a 401(k) loan.

The results section is designed to give you a clear, comprehensive view of the loan's impact.

Loan Impact Score: This gauge provides an at-a-glance summary. A high score suggests the loan's cost is relatively low compared to the amount borrowed. A low score indicates a significant negative impact on your retirement savings, often due to high opportunity cost or a long loan term.

Monthly Payment: This is the fixed amount you will pay each month to repay the loan over its term. Ensure this payment fits comfortably within your budget.

Total Interest Paid: This is the total interest you will pay over the life of the loan. Remember, this amount is paid back into your own 401(k).

Opportunity Cost: This is the estimated amount of investment growth you will miss out on by having the loan amount out of the market. This is a real, though often invisible, cost of borrowing.

Total True Cost: This is the most important number. It sums the origination fee, the opportunity cost, and any missed employer match. This figure represents the total reduction in your net worth as a result of taking the loan.

401(k) Balance Chart: This visual tool is powerful. It plots your projected 401(k) balance over time in two scenarios: with the loan and without it. The gap between the two lines represents the long-term impact on your retirement nest egg.

Amortization Schedule: This table provides a detailed, month-by-month breakdown of your loan payments, showing how much goes toward principal versus interest and the declining balance over time.

If you decide a 401(k) loan is your best option, take these steps to reduce its negative impact:

1. Borrow the Smallest Amount Necessary: Don't take the maximum just because you can. The less you borrow, the smaller the opportunity cost.
2. Choose the Shortest Possible Loan Term: A shorter term means you will repay the loan faster, reducing the time your money is out of the market and minimizing total opportunity cost.
3. Continue Your Contributions: Do not stop or reduce your regular 401(k) contributions while repaying the loan. This is crucial for staying on track for retirement and, if applicable, for continuing to receive an employer match.
4. Make Extra Payments if Possible: If your plan allows, paying more than the minimum monthly payment will get the money back into your investment account sooner.
5. Understand Your Plan's Rules: Confirm whether your employer will continue to provide a match on your contributions while the loan is outstanding. If they don't, the cost of the loan increases dramatically.

1. Ignoring the Opportunity Cost: Many people focus only on the interest rate, forgetting that the lost market growth is often the largest cost.
2. Failing to Plan for Job Separation: Not having a plan to repay the loan if you leave your job can lead to a disastrous tax bill and penalties.
3. Using it for Non-Essential Spending: A 401(k) loan should be a last resort for critical needs, not a tool to fund vacations or lifestyle upgrades.
4. Pausing 401(k) Contributions: Stopping contributions while repaying the loan compounds the damage by sacrificing new savings and any associated employer match.
5. Taking a Second Loan: Juggling multiple 401(k) loans can create a cycle of debt that severely damages your ability to retire.