403(b) Loan Calculator: Find the True Cost of Borrowing
Use this guide to understand the assumptions, inputs, results, and next steps behind the calculator.
Borrowing from your 403(b) can seem like an easy, low-cost solution when you need cash. Since you pay the interest back to your own account, many assume it's a "free" loan. However, the true cost includes the investment growth you forfeit while the money is out of your account—a significant factor this calculator helps you quantify. The IRS generally limits 403(b) loans to the lesser of $50,000 or 50% of your vested account balance.
This tool is designed for employees of public schools, non-profits, and other tax-exempt organizations who are considering a 403(b) loan. It calculates your monthly payment, total interest paid, and, most importantly, the hidden opportunity cost. By comparing your account's projected growth with and without the loan, you can make an informed decision about whether tapping into your retirement savings is the right move. For a broader view of your savings goals, see our general retirement savings calculator.
Key 403(b) Loan Rules for 2026
Before taking a loan from your 403(b) plan, you must understand the IRS regulations that govern them. While your specific plan may have additional rules, these are the federal guidelines that apply to all 403(b) loans.
| Rule | 2026 Guideline | Important Details |
|---|---|---|
| Maximum Loan Amount | The lesser of $50,000 or 50% of your vested balance. | The $50,000 limit is reduced by the highest outstanding loan balance you've had in the previous 12 months. |
| Minimum Loan Amount | Varies by plan (often $1,000). | Plans are not required to offer loans, and they can set their own minimum borrowing amounts. |
| Repayment Term | 5 years for a general-purpose loan. | The loan must be repaid in substantially level payments made at least quarterly. Most plans require payroll deductions. |
| Home Purchase Exception | The term can be extended (e.g., 15-30 years). | The loan must be used to purchase your principal residence. Documentation is required. |
| Interest Rate | Set by the plan, typically Prime Rate + 1% to 2%. | The rate must be "commercially reasonable." The interest you pay is credited back to your 403(b) account. |
| Job Separation | Loan is typically due in full. | If you leave your employer, you must repay the loan, often by the tax-filing deadline for that year, to avoid default. |
Failing to repay the loan according to its terms will result in a "deemed distribution." The outstanding balance will be treated as taxable income and may be subject to a 10% early withdrawal penalty if you are under age 59½. You can estimate the impact of a default with a 401(k) loan default penalty calculator, which uses the same tax principles.
403(b) Loan vs. Other Borrowing Options: A Comparison
A 403(b) loan is just one of several ways to access cash. It's crucial to compare it against other common alternatives like a personal loan or a Home Equity Line of Credit (HELOC). Each has distinct advantages and disadvantages.
| Feature | 403(b) Loan | Personal Loan | Home Equity Line of Credit (HELOC) |
|---|---|---|---|
| Credit Check | No | Yes, impacts credit score | Yes, impacts credit score |
| Interest Rate | Typically low (Prime + 1-2%), paid to yourself. | Varies based on credit (can be high). | Variable, tied to Prime Rate. |
| Approval | Quick and easy, uses your own money. | Based on creditworthiness and income. | Requires home appraisal and equity. |
| Repayment | Rigid payroll deductions. | Fixed monthly payments. | Flexible, interest-only payments during draw period. |
| Retirement Impact | High. Reduces retirement balance and loses market growth. | Low. Does not affect retirement savings. | Low. Does not directly affect retirement savings. |
| Biggest Risk | Job loss can trigger full, immediate repayment or default. | Defaulting damages your credit score significantly. | Defaulting can lead to foreclosure on your home. |
| Tax Deductibility | No | No | Yes, if used for home improvements. |
When a 403(b) Loan Might Make Sense:
- You have poor credit and cannot qualify for other affordable loans.
- You need a relatively small amount of money for a short period (1-2 years).
- Your job is extremely stable, and you have no plans to leave.
When to Consider Alternatives:
- You have good credit and can secure a low-rate personal loan.
- You are a homeowner with significant equity and can get a HELOC.
- The loan is for a large amount or a long term, maximizing the potential opportunity cost.
- There is any uncertainty about your job stability. The risk of default upon job separation is the single greatest danger of a 403(b) loan.
Always explore alternatives before tapping into the funds meant to secure your future. A slightly higher interest rate on a personal loan is often a small price to pay to keep your retirement plan fully invested and growing.
The Math Behind Your 403(b) Loan Calculation
The calculator determines the true cost of your 403(b) loan by running several calculations, from your basic monthly payment to the complex opportunity cost over your entire career. Here are the core formulas it uses.
The monthly payment is calculated using the standard loan amortization formula:
Monthly Payment = (Loan Amount × Monthly Interest Rate × (1 + Monthly Interest Rate)^Total Months) / ((1 + Monthly Interest Rate)^Total Months - 1)
Where:
- Loan Amount = The total amount you borrow.
- Monthly Interest Rate = Your annual interest rate divided by 12.
- Total Months = The loan term in years multiplied by 12.
The most critical calculation is the Total True Cost, which combines all explicit and implicit costs of the loan.
Total True Cost = Total Interest Paid + Origination Fee + Opportunity Cost + (Missed Employer Match × Loan Term)
Where:
- Total Interest Paid = The sum of all interest payments over the life of the loan (this is paid back to your account).
- Origination Fee = Any upfront fee charged by your plan administrator.
- Opportunity Cost = The difference between your projected 403(b) balance at retirement without the loan and with the loan.
- Missed Employer Match = The total value of any employer contributions you forfeit while the loan is active.
The Opportunity Cost itself is derived from a year-by-year projection:
Opportunity Cost = Final Balance Without Loan - Final Balance With Loan
Where:
- Final Balance Without Loan = Your projected 403(b) balance at retirement, assuming your full balance grows at the expected market return with ongoing contributions.
- Final Balance With Loan = Your projected balance at retirement, accounting for the initial withdrawal, repayments, and reduced growth on the borrowed amount.
This comprehensive approach ensures you see beyond the interest rate and understand the real impact on your ability to reach your retirement number.
Frequently Asked Questions About 403(b) Loans
What is a 403(b) loan?
A 403(b) loan allows you to borrow money from your own retirement savings account. Unlike a regular withdrawal, you must repay the loan with interest. The interest you pay goes back into your own account, but the primary costs are the lost investment growth and the risk of default if you leave your job.
How much can I borrow from my 403(b) in 2026?
In 2026, you can generally borrow up to 50% of your vested 403(b) account balance, with a maximum loan amount of $50,000. The total limit is reduced by the highest outstanding loan balance you had in the prior 12 months.
Is it better to take a 403(b) loan or a hardship withdrawal?
A loan is almost always better than a hardship withdrawal. A loan preserves your retirement savings (as long as you repay it), while a hardship withdrawal permanently depletes them. Withdrawals are also subject to income tax and a 10% penalty if you're under 59½, making them far more costly. See our 403(b) withdrawal calculator to understand the tax implications.
Is the interest I pay on a 403(b) loan tax-deductible?
No. The interest paid on a 403(b) loan is not tax-deductible, even if you use the funds to buy a home. This differs from the mortgage interest deduction you might get with a traditional mortgage or HELOC.
Can I keep contributing to my 403(b) while repaying a loan?
This depends on your plan's rules. Many plans allow you to continue making contributions while repaying a loan. However, some plans may suspend your ability to contribute or, more commonly, suspend your employer's matching contributions until the loan is fully repaid. Factoring in lost matching funds is essential to calculating the loan's true cost. A 403(b) contribution calculator can show the long-term impact of pausing contributions.
Does a 403(b) loan show up on my credit report?
No. Since you are borrowing your own money, a 403(b) loan does not involve a credit check and is not reported to credit bureaus. It will not affect your credit score unless you default after leaving your job and the plan provider takes collection action.
What happens to my 403(b) loan if I file for bankruptcy?
Typically, a 403(b) loan is not dischargeable in bankruptcy. You are generally still required to repay the loan. Retirement accounts like 403(b)s have strong protections from creditors during bankruptcy proceedings.
Next Steps
After using the calculator, you have a clearer picture of the financial trade-offs of a 403(b) loan. The next step is to compare this cost against other options and make a decision that aligns with your short-term needs and long-term retirement goals.
- Model Your Repayment: Use a dedicated 401(k) loan repayment calculator to see a detailed amortization schedule. The principles are identical for 403(b) loans.
- Evaluate Your Savings Rate: If you take a loan, ensure you can continue contributing. Use the 403(b) contribution calculator to see how different contribution levels affect your retirement outcome.
- Assess Your Overall Plan: See how this decision fits into your larger financial picture with our comprehensive retirement withdrawal calculator to test different scenarios.
Last updated: July 2026