Calculate 401(k) loan repayment, interest paid back to yourself, and the opportunity cost of lost market returns. See the true cost of borrowing from retirement.
A 401(k) loan lets you borrow from your own retirement savings — typically up to 50% of your vested balance or $50,000, whichever is less. You repay the loan with interest back into your own account, which sounds attractive. But there is a hidden cost: the money you withdraw misses out on market returns during the repayment period.
The 401(k) Loan Calculator shows you the full picture — your monthly repayment, total interest (paid to yourself), and the critical opportunity cost of lost investment growth. By comparing the repayment total against what that money would have earned if left invested, you can see whether a 401(k) loan truly saves money versus alternatives like a personal loan or HELOC.
Understanding the true cost requires modeling both the loan repayment and the foregone investment returns. This calculator does both, so you can make an informed decision about borrowing from your retirement. Seeing both the loan cost and the forgone investment growth side by side makes the hidden tradeoff clear.
The interest rate on a 401(k) loan is typically prime rate plus 1% (around 9-10%), and you pay the interest to yourself. That sounds like free money — but the invested funds you withdraw could have earned 7-10% annually in the market. If your market return exceeds the loan interest rate, the opportunity cost makes the 401(k) loan more expensive than it appears. This calculator quantifies that hidden cost.
Monthly payment = P × r(1+r)^n / ((1+r)^n − 1) where r = monthly rate. Opportunity cost = FV of loan amount at market return over repayment term − loan amount. True cost = Opportunity cost − Interest earned back. FV = PV × (1 + annual return)^years.
Result: $622.75/mo, $7,365 interest to self, $14,079 opportunity cost
You borrow $30,000 at 9% for 5 years, paying $622.75/month. You pay $7,365 in interest back to your own account. However, if that $30,000 had stayed invested earning 8% annually, it would have grown to $44,079 — a $14,079 opportunity cost. The net true cost of the loan (opportunity cost minus the interest returned) is $6,714. Plus, if you leave your job, the full balance typically becomes due within 60 days or is treated as a taxable distribution.
401(k) loan repayments are made with after-tax dollars from your paycheck. When you eventually withdraw those funds in retirement, they are taxed again as ordinary income. The interest portion of your repayment is effectively taxed twice — once when you earn the money to make the payment, and again when you withdraw it. This hidden cost is often overlooked.
The interest rate on a 401(k) loan looks attractive — typically 5-10%. But the real cost is the market return you sacrifice. With historical stock market returns averaging 7-10% annually, the opportunity cost often exceeds the interest you pay back to yourself. For a $30,000 loan over 5 years, the opportunity cost can range from $10,000 to $18,000.
The biggest risk of a 401(k) loan is leaving your employer — voluntarily or involuntarily. The outstanding balance typically becomes due within 60-90 days. If you cannot repay, the entire amount is treated as a taxable distribution with potential penalties. This turns a manageable loan into a financial crisis.
A 401(k) loan can be appropriate to avoid higher-cost debt (like credit card balances at 20%+), when credit is unavailable, or for a short-term bridge. The key is repaying quickly and ensuring you have job security during the repayment period.
Yes, the interest on a 401(k) loan goes back into your own retirement account. However, this does not make the loan free — the withdrawn funds miss out on market returns, and the interest portion is subject to double taxation (paid with after-tax dollars, then taxed again at withdrawal).
Most plans require full repayment within 60-90 days of separation. If you cannot repay, the outstanding balance is treated as a taxable distribution. You will owe income tax plus a 10% early withdrawal penalty if you are under age 59½.
Opportunity cost is the investment growth you miss by withdrawing funds from your 401(k). If your account averages 8% annual returns and you borrow $30,000 for 5 years, that money would have grown by about $14,000. This lost growth is the true hidden cost of the loan.
It depends on the interest rates and your expected market returns. A 401(k) loan has a lower stated rate, but the opportunity cost of lost returns often makes the true cost comparable to or higher than a personal loan. The risk of job loss and forced repayment adds additional risk.
Most plans allow general-purpose loans (5-year max) and home purchase loans (up to 15 years). Some plans restrict loans to hardship situations. Check your plan documents for specific rules. Not all employer plans offer loans.
No. 401(k) loans are not reported to credit bureaus because you are borrowing from yourself, not from a lender. This is one advantage over personal loans, credit cards, or HELOCs, which do affect your credit report.