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LSU1018
LSU Fan
Baton Rouge
Member since Feb 2007
6695 posts

Borrowing from a 401k vs Home Equity Loan
If you needed to get 10-20k, which route would you choose if you had both of the above available?

I feel like borrowing from a 401k would be better since you are paying the interest back to yourself.


dlmast87
Ohio State Fan
Amish Country
Member since Dec 2007
1752 posts

re: Borrowing from a 401k vs Home Equity Loan
Personally I would go with the home equity loan. If you borrow from a 401k, that money loses something you can never get back...the ability to compound over time.


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bubbz
Baylor Fan
Baton Rouge
Member since Mar 2006
21489 posts

re: Borrowing from a 401k vs Home Equity Loan
HELOC


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notsince98
Missouri Fan
KC, MO
Member since Oct 2012
10639 posts

re: Borrowing from a 401k vs Home Equity Loan
How would the 401k loan work? Would the money actually be removed from your account or would the money in your account just be the collateral you are borrowing against?

If the loan actually removes money from your 401k that gets added back as you make each payment, then NO! If your 401k is just collateral and still earns over the loan period, then go for it if the interest rate is lower than home equity loan.


Cin8
LSU Fan
Nation's Capital
Member since Aug 2017
37 posts

re: Borrowing from a 401k vs Home Equity Loan
Hi LSU1018, I don't recommend borrowing against a 401k. Many companies have a clause that if you leave the company, position terminated, etc. you would need to pay the money back quickly. Also, if you have a regular 401k (versus the ROTH version) you would be using post-tax money to pay back a loan that is on pre-tax contributions. In an essence you are paying double tax (as you'll pay tax on the 401k distributions when you retire).


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AUFanInSoCal
Auburn Fan
The Hotel California
Member since Nov 2007
1177 posts

re: Borrowing from a 401k vs Home Equity Loan
quote:

How would the 401k loan work? Would the money actually be removed from your account or would the money in your account just be the collateral you are borrowing against?


Mine was a collateral type loan. No funds were removed. They just deducted the amount to pay back from your paycheck ~ 400 bucks a pay period. Barely noticed it.


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UpstairsComputer
LSU Fan
Prairieville
Member since Jan 2017
581 posts

re: Borrowing from a 401k vs Home Equity Loan
One would assume you had the HELOC in place already based on what you've said. If so, certainly HELOC.

I would never tell someone to take a loan against the 401k unless there were no other choice for all the reasons mentioned.

If it's only 10k, why don't you just pay in cash?


Popths
LSU Fan
Baton Rouge
Member since Aug 2016
1895 posts

re: Borrowing from a 401k vs Home Equity Loan
Google "reasons not to borrow from your 401K". Go with the HELOC.


baldona
Auburn Fan
Florida
Member since Feb 2016
10058 posts

re: Borrowing from a 401k vs Home Equity Loan
Heloc and it's not close. Don't touch your 401k unless you have absolutely no other choice.

But even if all else was equal, your Heloc interest is tax deductible just like your home loan. Your 401k will likely earn interest while you are borrowing it. You can get a HELOC generally for 2-3% and very low costs to close.

Your 401k should be for retirement and retirement only, once you start even considering it for other options you are going to start tampering with your retirement.


GenesChin
Army Fan
The Promise Land
Member since Feb 2012
35775 posts

re: Borrowing from a 401k vs Home Equity Loan
quote:

You can get a HELOC generally for 2-3% and very low costs to close.


Where are you finding 2-3% HELOC rates?


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notsince98
Missouri Fan
KC, MO
Member since Oct 2012
10639 posts

re: Borrowing from a 401k vs Home Equity Loan
quote:

Google "reasons not to borrow from your 401K". Go with the HELOC.


That isn't very helpful if he is considering borrowing against his 401k, not from it.


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10
foshizzle
LSU Fan
Washington DC metro
Member since Mar 2008
40599 posts

re: Borrowing from a 401k vs Home Equity Loan
quote:

Your 401k should be for retirement and retirement only, once you start even considering it for other options you are going to start tampering with your retirement.


This is often said but not really true. That's purely an impulse-control issue that has nothing to do with money.


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Overbrook
Tulane Fan
Member since May 2013
5147 posts

re: Borrowing from a 401k vs Home Equity Loan
Borrow at whichever is the lower rate. I used to use for a 401k loans. No hassle and nobody knows about it except you and the 401(k)


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