Should I take out a 401k loan to pay off my car?

No, as far as financial planning is concerned, this would be a very bad idea. The most important point is that you would taking money that is currently building wealth and putting it into something that is losing money like a car. There are also some other issues. For example, if for any reason you do not have this job over the next five years, the 401k loan becomes instantly due. If you do not pay it back, it counts as a withdrawal and you will be hit with approximately 40% in taxes and penalties on the money. So there is a lot of risk associated with it.

As far as interest in concerned, the difference between rates might seem like a lot, but it's really not. if you are actively paying down this debt which you are, the difference might be about $20 a month. So not a huge amount of savings there. I would also think twice about going out five more years on the loan. you are going to owe more than the car is worth in the out years.

The bigger question for me is - can you really afford this car. If $100 a month goes such a long way, I would really think about downgrading cars. can you sell this car and walk away with any cash? Could you buy a car for cash or finance a $3000 car? These are bigger picture questions that I would ask.

Sorry the news is not better.

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Angry bird is partially incorrect.

When you take out a LOAN on a 401k, you do not have a 10% penalty. That applies to withdrawals (where you're taking the money and not paying it back to your 401k).

I would, because of what Angry mentioned, ask your employer what possible drawbacks would be to doing this. I know we've had to borrow off our 401k before, and if my husband would have ever been laid off, the loan would have been forgiven. Some, it's immediately due with interest/penalties, etc., so it's best to ask your employer before you sign up on it.

Also realize that when you borrow against your 401k, if stocks drop (assuming your 401k is funded by stock purchases like ours is), the value will not be as great as it is right now.

Myself, if that made the difference of losing the car or eating, I'd do it, but with lots of caution (asking about it first to your job to be aware of any and all things that could happen).

With a 401k Loan, you will have the option of borrowing from your retirement savings. It is very convenient as there is no credit check or any long application. Most loan programs will require you to just make a phone call. The important thing is that you are paying interest rates to yourself and not to any lender.

Remember that it is loan and must be paid back.As the interest is compounded on your retirement plan, you are affecting your money growth. Also, you will have to pay-off the entire amount, if you quit your current job.

When retirement's far away, it seems a good idea. If you are comfortable with using your retirement funds, go ahead. But, don't forget to make regular payments. Although, you have the option of refinancing your car loan.

Before taking decision,understand your situation and think about the pros and cons of 401(k) loan.

Really your financial intelligence has NOT increased since your 20s. You put $1 in your 401k and your company puts in 50 cents. I don't know anywhere that you get 50% interest on anything. Keep contributing to 401k and take 2 yrs to pay off car loan.

my car has been totaled recently. I have had several wrecks in it. none were my fault. I am over 59 1/2 and I have a 401k(30,000). I don't have any credit. should I use my 401k along w/ my salvage funds and credit union funds to buy a car. I no longer work for the company that I have my 401k with. can I borrow against the allowable amount of 15,000. I am not 65 yet.

You will lose roughly 40% of the 401 in penalties and taxes if you take it out. Check with your bank to see if you can refinance for a lower payment. Or sell the car, pay it off and buy a cheaper car for cash.

What an incredibly bad idea!!!!!!!

Work more, cut out expenses, and pay it off!! $225 a month!?!??! Pay $500 or mor per month.

Interesting thread!

Do it