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?"

Answer
“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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Eric Schad
Answered on Jun 18, 2021
Eric Schad has been a freelance writer for nearly a decade, as well as an SEO specialist and editor for the past five years. Before getting behind the keyboard, he worked in the finance and music industries (the perfect combo). With a wide array of professional and personal experiences, he’s developed a knack for tone and branding across many different verticals. Away from the computer, Schad is a blues guitar shredder, crazed sports fan, and always down for a spontaneous trip anywhere around the globe.
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