How much can I borrow from my 401(k) in 2026?

The IRS limits 401(k) loans to the lesser of $50,000 or 50% of your vested account balance. If your vested balance is $60,000, you can borrow up to $30,000. If your vested balance is $120,000 or more, the maximum loan is $50,000 regardless of balance.

What is the interest rate on a 401(k) loan?

Most plans charge prime rate plus 1%. With the prime rate at 7.50% in mid-2026, a typical 401(k) loan carries an interest rate of 8.50%. Crucially, you pay this interest back to yourself — it goes back into your own account, not to a lender.

How long do I have to repay a 401(k) loan?

You must repay a standard 401(k) loan within five years. If the loan is used to purchase a primary residence, the plan may allow a longer repayment period — often up to 15 or 30 years depending on plan rules. Repayments are made through payroll deductions.

What happens to my 401(k) loan if I lose my job?

If you leave your employer — voluntarily or through layoff — most plans require you to repay the outstanding loan balance by the tax filing deadline for that year (typically mid-October with an extension). If you cannot repay, the remaining balance is treated as a distribution: you owe income tax plus the 10% early withdrawal penalty if you are under 59½.

Does a 401(k) loan affect my credit score?

No. A 401(k) loan is not reported to credit bureaus and does not appear on your credit report. There is no credit check to borrow from your own 401(k). However, a defaulted 401(k) loan treated as a distribution is a tax event, not a credit event.

Is borrowing from my 401(k) a good idea?

Generally no, unless the alternative is higher-cost debt or financial emergency. The real cost is opportunity cost — money pulled out stops growing at market rates. A $20,000 loan outstanding for five years in a portfolio that grows 7% costs you roughly $8,000 in lost growth, on top of repaying the principal plus interest.

Borrow from 401(k) Calculator 2026 — True Cost of a 401(k) Loan

You can borrow up to $50,000 or 50% of your vested 401(k) balance — whichever is less — and repay it within five years through payroll deductions. The interest rate is typically prime plus 1% (approximately 8.5% in mid-2026), and you pay that interest back to yourself. The real cost is not the interest rate — it is the investment growth you forfeit while the money is out of the market.

2026 401(k) Loan Limits at a Glance

Vested Balance	Maximum Loan
$20,000	$10,000 (50%)
$40,000	$20,000 (50%)
$60,000	$30,000 (50%)
$80,000	$40,000 (50%)
$100,000+	$50,000 (IRS cap)

The $50,000 limit is reduced by the highest outstanding loan balance in the previous 12 months. If you repaid a prior loan recently, your new loan limit may be lower.

Monthly Payment Calculator by Loan Size (8.5% Rate, 5-Year Term)

Loan Amount	Monthly Payment	Total Repaid	Interest Paid Back to You
$5,000	$103	$6,180	$1,180
$10,000	$205	$12,300	$2,300
$20,000	$410	$24,600	$4,600
$30,000	$616	$36,960	$6,960
$50,000	$1,027	$61,620	$11,620

Assumes prime + 1% = 8.50%, monthly compounding, 60-month term.

The True Cost: Opportunity Cost Calculation

The monthly payment underestimates the real cost. Money removed from your 401(k) stops compounding. The opportunity cost is the investment return you would have earned had the loan balance stayed invested.

Formula: Opportunity Cost = Loan Amount × [(1 + r)^n − 1]
Where r = expected annual return, n = loan term in years

Loan Amount	Loan Term	Assumed Return	Opportunity Cost (Lost Growth)
$10,000	5 years	7%	~$4,026
$20,000	5 years	7%	~$8,051
$30,000	5 years	7%	~$12,077
$50,000	5 years	7%	~$20,128

This is the growth you miss out on — not returned to you as interest, simply lost to time out of the market.

Worked Example: $20,000 Loan vs. Personal Loan

Situation: Alex needs $20,000 for a home repair and is choosing between a 401(k) loan and a personal loan.

Factor	401(k) Loan	Personal Loan
Interest rate	8.5% (to self)	12.5% (to lender)
Monthly payment	$410	$455
Total repaid	$24,600	$27,300
Interest paid	$4,600 (to own account)	$7,300 (to lender — gone)
Opportunity cost	~$8,051 (lost market growth)	$0
Credit impact	None	Hard inquiry + new account
Job-loss risk	Balance due immediately	No change
True total cost	~$8,051	~$7,300

The 401(k) loan actually costs more in this scenario because of the opportunity cost — even though the stated interest rate is lower. The personal loan is the better choice here if Alex has stable employment and good credit.

When a 401(k) Loan Can Make Sense

A 401(k) loan may be worth considering when:

The alternative is a hardship withdrawal — a loan avoids the 10% penalty and keeps money growing after repayment
The alternative is high-interest debt — credit card rates above 20% APR can exceed the opportunity cost of a short-term 401(k) loan
You are highly confident in job security — the job-loss repayment risk is the biggest danger

Double Taxation Myth — Clarified

You may have heard that 401(k) loan repayments are “double taxed.” This is partially true but often overstated. You repay the loan with after-tax dollars, and those dollars are taxed again when you withdraw them in retirement. However, the interest portion (which goes back to your account) is taxed twice. The principal repayment is not — it restores money that was always going to be taxed on withdrawal.

What Happens If You Default

If you cannot repay the loan:

The plan declares a “deemed distribution”
The outstanding balance becomes taxable income for that year
If you are under age 59½, the 10% early withdrawal penalty applies
You receive a 1099-R for the defaulted amount

A $20,000 default in the 22% federal tax bracket plus 10% penalty costs $6,400 in taxes and penalties.

401(k) Loan vs. Other Options

Option	Rate	Credit Impact	Tax Risk
401(k) loan	8.5% (to self)	None	High if job changes
HELOC (home equity)	7–9%	Inquiry	Low
Personal loan	10–20%	Inquiry + new account	None
Credit card	20–29%	None extra	None
401(k) hardship withdrawal	N/A	None	High — penalty + tax

Written by WealthVieu

WealthVieu researches and writes data-driven personal finance guides using primary sources including the IRS, Bureau of Labor Statistics, Federal Reserve, and Census Bureau.

The content on Wealthvieu is for informational purposes only and should not be considered financial, tax, or investment advice. Consult a qualified professional before making financial decisions. Full disclaimer · Editorial policy