Description
The 401(k) Loan Calculator helps you estimate your monthly repayment amount if you choose to borrow from your 401(k) plan. By entering the loan amount, interest rate, loan term, and payment frequency, you can calculate the amount you’ll need to repay each period. This tool is useful for understanding the financial impact of taking a 401(k) loan.
Formula
To calculate the monthly payment for a 401(k) loan, follow these steps:
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Monthly Interest Rate:
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Total Number of Payments:
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Monthly Payment:
Steps to Calculate
- Determine the Loan Amount you wish to borrow from your 401(k) plan.
- Enter the Annual Interest Rate for the loan.
- Specify the Loan Term in years, indicating how long you plan to take to repay the loan.
- Enter the Number of Payments Per Year, typically 12 for monthly payments.
- Calculate the Monthly Interest Rate using the formula provided.
- Calculate the Total Number of Payments by multiplying the loan term by the number of payments per year.
- Calculate the Monthly Payment based on the formulas above to determine your repayment amount per period.
Facts About 401(k) Loans
- Loan Limits: The IRS allows 401(k) loans of up to 50% of your vested account balance, or $50,000, whichever is less.
- Interest Repayment: While you pay interest on a 401(k) loan, the interest typically goes back into your own 401(k) account, not to a lender.
- Repayment Terms: Generally, 401(k) loans must be repaid within five years, with exceptions for home purchases.
- No Credit Check: 401(k) loans don’t require a credit check, making them an option if you have limited credit history.
- Risk of Penalty: If you leave your job before the loan is repaid, the outstanding balance may become due immediately, or it could be treated as a taxable withdrawal subject to penalties.
This calculator helps you visualize the repayment obligations when taking a loan from your 401(k), making it easier to evaluate whether it’s the right financial choice.