Finance Question (Loan)

[GrizwalD]

what are the typical terms for borrowing from your 401k? I'm curious...

I can have one loan at a time and borrow up to 50% of my 401k value. Length is 6 years unless used for the purchase of a home and I can do 15 years.

Mudhog is 100% correct as far as the 0% scenario ..... but if your going to end up paying interest if you borrow against yourself, but on the other hand you have the money like you are saying, then why would you borrow against yourself? Interest you pay is money you lost!!! .... a great way to build credit is to go apply for a credit card (the credit card may be minimal since you have never started your credit) use this card for all your purchases gas, food, etc. but be sure to pay it off each month maybe even twice i month before the interest hits the card .... do this for about a year and you will see a major change in your credit

GD, I think you combined a couple different scenarios. The paying yourself interst was stated concerning the 401K loan and was not stated as part of the 0% interest scenario. All it really means is you are paying interest to yourself instead of paying it to someone else (making someone else money).

Do what?!! i said i agreed with you about the financing at 0% interest rate even if you have the money in the bank..... but if you are gonna borrow against a CD you still have to pay interest... why pay interest if he doesnt have to .... there is other ways to open and build credit without having to pay interest which the what i told him with the credit card

[camlock]

I can have one loan at a time and borrow up to 50% of my 401k value. Length is 6 years unless used for the purchase of a home and I can do 15 years.

what's the interest rate?

[MudHog]

I can have one loan at a time and borrow up to 50% of my 401k value. Length is 6 years unless used for the purchase of a home and I can do 15 years.

what's the interest rate?

4.25%


I borrowed $16,750 and took it out for 4 years. For me, I get my loan payment taken out of my check every two weeks. The only time I do anything is when I want to make any extra payments. Other than that, I don't touch it at all.

[MudHog]

Do what?!! i said i agreed with you about the financing at 0% interest rate even if you have the money in the bank..... but if you are gonna borrow against a CD you still have to pay interest... why pay interest if he doesnt have to .... there is other ways to open and build credit without having to pay interest which the what i told him with the credit card

Understood. I got thrown off with the ..... and combined things myself.


From a person who struggled with CC, I would say on a CC it would be riskier as a person who is trying to build credit would likely get a high interest rate card. Granted with minimal credit limit, but the person could still end up running up the card and end up having to pay outrageous interest.

With a CD, the money is in the bank and you still atleast pay interest to yourself and not to someone else and the interst rate would be far less than what a CC would be. Plus, the interest could be looked at as an additional way to "save" money being it is being put back into the CD. Similar to me with my 401k loan. Yes I'm paying myself interest, but I'm doing exactly the same thing as if I would increase my 401k funding percentage.

[sevenhead]

I may be completely off here but last I heard creditors don't look as much on small loans as such stated, but rather credit cards, and larger loans such as student loans.

[ScottyLee]

I may be completely off here but last I heard creditors don't look as much on small loans as such stated, but rather credit cards, and larger loans such as student loans.

we look at it all.

we look for loan history as it relates to length of time for consistent payments. we look at DEBT to income as well as installment loan debt to Income, credit score, the collaterals loan to value, late pays etc...

small loans can be as beneficial as credit cards and student loans, what your being told are all forms of credit that usually reflect loan periods of repayment history. it doesn't much matter if it's school, cc, car note, personal secured loan as long as good payment history is there. just my 2 cents

[Jordan River]

Borrow $6,000 at 0% is, on average in my opinion, a 20% flat interest "rate". "Same as Cash" deals are the same thing... about a 20% rate. Go in Sears when they offer the 0% same as cash deals, see the manager, offer 30% less than whats showing on the washer/dryer, refrigerator, tool chest, whatever, and you will walk out having paid cash with about a 20% discount off the price of whatever it is you wanted. Have done it several times at many different businesses. I wish someone would have told me many years ago "you gotta build your credit" is hogwash. Just sayin.
Works on motorized stuff as well. Gotta show em the money, Jerry!

[stang67]

Borrow $6,000 at 0% is, on average in my opinion, a 20% flat interest "rate". "Same as Cash" deals are the same thing... about a 20% rate. Go in Sears when they offer the 0% same as cash deals, see the manager, offer 30% less than whats showing on the washer/dryer, refrigerator, tool chest, whatever, and you will walk out having paid cash with about a 20% discount off the price of whatever it is you wanted. Have done it several times at many different businesses. I wish someone would have told me many years ago "you gotta build your credit" is hogwash. Just sayin.
Works on motorized stuff as well. Gotta show em the money, Jerry!

Bingo.

[huntsober]

Yall know my thoughts

NO WAY NEVER.

Not ever going to consider it. Wonder why every city has big bank buildings? Every wonder how vegas keeps the lights on 24x7. All while some think they can out smart them at their game.

CASH is the only way to out smart a bank.

[lower14]

Why would a person want to pay for the ATV in cash when they can get a 0% loan and keep the money in the bank as long as possible? Even with a non-Kasasa saving earning 0.1%, that 0.1% return is still more than 0% by paying cash.

Because if you own it outright you dont have to worry about losing your job or something else to keep you from missing a payment. You never know what might happen.

No f-ing shiat. If you pay cash for things, future events don't matter. If you finance a purchase and try to beat the interest rate game and that causes you to have future financial obligations, you have to consider those future events that you may or may not have influence over.

[MemphisStockBroker]

.... Some people argue that had those properties been financed and the owners had savings they could have walked away form the note, leaving the bank to take the loss. The banks were already going out of business so another default wasn't going to hurt.
So if you apply those principals to the ATV scenario. Why put all your cash into it, lose your job and either not be able to sell it or have to take a loss on it. Or finance it, keep your cash, lose your job and have to sell it or let the bank repo it.

I know it's twisted and maybe even unethical but it's a unique concept. I had never thought of it until someone way smarter than me started explaining it to me one day.

....

From a guy that does mortgages / loans, this is some seriously screwed up logic. Where do you think the bank gets their money to lend out? Its not their money. its from investors..

oversimplification. You invest in bonds through your 401k. Your bond fund manager buys mortgages. people default on the mortgages / bonds. your default screws the 401k investors.

[Faithful Retrievers]

Great theories an all but they are not all applicable to everyone. I say if you don't have any credit its a good place to start. All that you dont need credit works real well when you go to buy a house. I went along with that started a business, a successful business, well son you don't have three years current income out of business or a credit score. No sir I always pay for what I need. I had third of the cost of the house in that bank when they told me that. Luckily I found a more creative lender. I can go along with toys, cars, an eventually home be paid for, but as far as businesses it is just the cost of doing business. Maybe in 10 years when I'm 40 I can pay cash but I couldn't be headed that direction without using credit. I realize thats stretched farther than the original question but every business model I studied and good entrepenuer I have ever talked to knew how to manage credit. If my ROI is higher than the interest rate its not costing me anything.

[SNOT]

Why would a person want to pay for the ATV in cash when they can get a 0% loan and keep the money in the bank as long as possible? Even with a non-Kasasa saving earning 0.1%, that 0.1% return is still more than 0% by paying cash.

Because if you own it outright you dont have to worry about losing your job or something else to keep you from missing a payment. You never know what might happen.

I still don't agree.

Scenario: I have $6000 to go out and buy a new ATV and I can get a 0% financing. If I pay the ATV outright, I'm out of $6000 and have zero dollars in the bank. If I finance it, I still have say $5000 in the bank. A month after I get the ATV I lose my job. I still have $5000 in the bank to pay the note with all while the $5000 in the bank is building interest.

.

I think the smarter way to handle that situation would be to pay cash for a $2-3,000 dollar used ATV and have $2-3,000 left in the bank. You avoided going in debt on a machine that you will soon be upsided down on and still have most of your available funds in the bank.

[kb7722]

what are the typical terms for borrowing from your 401k? I'm curious...

You borrow money from your 401k at a some determined interest rate, but instead of paying a bank interest you are paying your 401k the interest. So the question you have to ask yourself is will the market rate of return be significantly higher than the interest rate over the loan term. If so, you might be better off leaving the money in the market and borrowing from the bank.

[stang67]

.... Some people argue that had those properties been financed and the owners had savings they could have walked away form the note, leaving the bank to take the loss. The banks were already going out of business so another default wasn't going to hurt.
So if you apply those principals to the ATV scenario. Why put all your cash into it, lose your job and either not be able to sell it or have to take a loss on it. Or finance it, keep your cash, lose your job and have to sell it or let the bank repo it.

I know it's twisted and maybe even unethical but it's a unique concept. I had never thought of it until someone way smarter than me started explaining it to me one day.

....

From a guy that does mortgages / loans, this is some seriously screwed up logic. Where do you think the bank gets their money to lend out? Its not their money. its from investors..

oversimplification. You invest in bonds through your 401k. Your bond fund manager buys mortgages. people default on the mortgages / bonds. your default screws the 401k investors.

Thank you, MSB. I can't believe some of the things I'm reading.