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Should I use a 401(k) loan to pay off my car loan balance?
"Borrowing against my 401(k), I can cut my car loan interest rate in half and lower my payments by $100. This would extend the loan to 60 months, but I only have 36 left currently.
Should I use this 401(k) loan to pay off my car balance?"
Eric Schad · Updated on
Reviewed by Shannon Martin, Licensed Insurance Agent.
“Using a 401(k) loan might be a clever move, as it can help you save money on the interest paid over the life of the loan.
The problem with your scenario is that you’re taking the loan out two additional years. If you’ve already paid on your car for two years or more, extending the loan another five means you’re going to pay more interest than necessary—and you might even be upside-down on this loan.
If you can maintain the same length of the loan, then dipping into your 401(k) for a loan is sensible. Keep in mind that if you don’t pay this amount back on time, you’re going to get hit with tons of fines for lack of payment, which then becomes penalties for an early withdrawal from your retirement fund.
Stay on top of your payment, and you shouldn’t have any problems.”
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- Gregory R.
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