Should you borrow from your 401k to finance a vehicle?
In this video we model scenarios as to when it makes sense.
First thing to understand is how a 401k loan actually works. You can borrow up to 50% of your balance or $50k, whichever is less.
So if you have $10k in your 401k, you can borrow $5k. If you have $50k in your 401k, you can borrow $25k. If you have $150k in your 401k you can borrow???
That’s right, $50k. Good job!
So, let’s say you have $50k in your 401k and are looking to buy a vehicle for $25k. You can borrow the $25k from your 401k or you can finance it through the dealership.
$25k borrowed from your 401k at 5% interest means you’re monthly payment will be $470.
Thus this decision really comes down to what the interest rate is your dealer or bank is offering.
Watch the video and I show you some examples.
Hope this helps!