401k Loan vs Personal Loan: What’s the Difference?
Summary
Learn the key differences between a 401(k) loan vs. a personal loan when you need extra cash — including pros, cons and which one fits your financial life.
In this article:
If you need extra money for an unexpected expense, finding the right way to cover the cost can seem overwhelming. Depending on how much money you need to borrow, you might be wondering if withdrawing money from your 401(k) is a good idea or if you should apply for a personal loan instead.
Each loan has its own set of requirements and costs and benefits to consider. Understanding the differences between these options is key to making a smart decision for your financial situation.
What is a 401(k) loan?
A 401(k) loan is a loan that you take out from your employer-sponsored 401(k) retirement savings plan. When you take out a 401(k) loan, you’re borrowing money from yourself. Unlike other types of loans, a 401(k) loan doesn’t involve a bank or lender.1
How do 401(k) loans work?
Borrowing from your 401(k) might seem like an easy way to access money, but it’s important to understand how this type of loan works before you dip into your retirement savings. If you don’t repay your 401(k) loan according to the plan’s terms, the unpaid balance may be treated as taxable income. You could also face an additional 10% early withdrawal tax if you’re under age 59 ½.
Eligibility
To be eligible for a 401(k) loan, you need to have a 401(k) account with your employer. Not all 401(k) plans allow loans, so check with your plan administrator to see if this option is available to you.2
Interest
When you borrow from your 401(k), you typically repay the loan with interest. Unlike interest paid to a traditional lender, the interest on a 401(k) loan goes back into your retirement account and becomes part of your account balance.3
Repayment
A 401(k) loan usually must be repaid through quarterly payments within five years, unless you used the funds to buy your primary home.4 However, most plans allow early repayment with no prepayment penalty. Payments may be made through automatic payroll deductions, so the money comes directly out of your paycheck.5
Vesting
Vesting in a retirement plan refers to ownership. The money you contribute (add) to your 401(k) from your paycheck belongs fully to you, meaning it’s 100% vested. Employer matching contributions are often subject to a vesting schedule. Over time, you gain greater ownership over those funds until they’re fully vested.6
In 2026, the Internal Revenue Service (IRS) has limited the amount you can borrow to 50% of your vested account balance or $50,000, whichever is less.7
What is a personal loan?
A personal loan is a lump sum of money you borrow upfront from a lender, bank or credit union and repay over time in predictable monthly payments, with interest (the cost of borrowing). Personal loans can be used for almost any purpose, including consolidating debt, paying for emergency expenses or renovating your home.
Personal loans can be secured or unsecured
If you’re approved for a personal loan, you may see secured or unsecured next to your offer. A secured loan uses collateral (something of value that you possess, like a car) to back the loan. If you don’t repay your loan as agreed, the lender has the right to take the collateral to recover what you owe. If you choose to use collateral, you may qualify for a lower interest rate or a larger loan amount.
An unsecured loan, on the other hand, means the lender doesn’t need collateral. Instead, the lender focuses more on your credit profile and income to determine your eligibility.
How does a personal loan work?
When you apply for a personal loan, you’ll submit an application with details about your financial information.
Eligibility
Each lender has their own eligibility criteria, but most will review the following information to decide whether to approve your loan application:
- Credit history
- Income and expenses
- Loan purpose
- State of residence
- Value of your collateral, if a secured loan
Personal loan amounts vary by lender. OneMain offers personal loans from $1,500 to $35,000.†
To get an estimate of how much you may be able to borrow without submitting a full loan application, you can prequalify. Prequalifying takes only a few minutes and does not affect your credit score.
Interest
The interest rate on a personal loan is determined by a combination of factors, such as your credit history, the loan amount, your income and the amount of debt you already have. Interest is the cost of borrowing.
A personal loan interest rate is typically fixed, meaning it stays the same throughout the loan term.
Repayment
Typically, personal loans must be repaid within two to five years, but repayment terms may vary by lender.8
Personal loan vs. 401(k) loan: What’s the difference?
The table below shows some key differences between a 401(k) loan and a personal loan.
| Feature | Personal loan | 401(k) loan |
|---|---|---|
| Repayment terms | Typically two to five years | Typically up to five years |
| Impact on retirement savings | None | Loss of potential returns on the amount you borrow |
| Speed of funds | For OneMain loans, may be as soon as one hour after loan closing | About a week, but may vary depending on your 401(k) plan |
| Credit score impact | Positive impact if the loan is paid as agreed | No impact on your credit score9 |
| Tax impacts | Generally won’t affect your taxes | You may owe income taxes on the loan, as well as tax penalties, if you don’t repay it as required |
Should you get a 401(k) loan or a personal loan?
A helpful way to decide between a 401(k) loan and a personal loan is to think carefully about both your current financial needs and your future goals. Here are some questions to ask yourself to help you make that decision:
- What is my current financial situation? Assess your income and expenses to determine which loan option you can afford and which choice makes the most sense for your financial situation.
- What is the purpose of the loan? Think about why you need the loan and how you plan to use the funds. This may help you determine which loan option is most appropriate for your needs. In some cases, you may not be eligible to qualify for a 401(k) loan.
- Can I afford the repayments? Make sure you can comfortably make payments for the loan option you choose without straining your budget. Consider your current and future income to determine if you can meet the repayment terms.
- How will this loan impact my future finances, including retirement savings? Evaluate the long-term effects of each loan option. Consider how borrowing from your 401(k) or taking out a personal loan will affect your future financial security.
A 401(k) loan might make sense if:
- Your plan allows it: Not all 401(k) plans allow 401(k) loans. Check with your plan administrator to see if you could be eligible.
- You have a large enough balance: There is enough money in your 401(k) to borrow some, while leaving a substantial balance that could continue to be invested and earn interest.
- You want a lower interest rate: Since you’re borrowing from yourself, the interest rate for a 401(k) loan is typically lower than other types of loans.9
- You aren’t planning a career change: If you leave or lose your job before a 401(k) loan is repaid, you may need to repay the full loan much more quickly than you planned, which could create financial hardship.10
- You aren’t concerned about an early withdrawal penalty: If you’re under 59½ years old, you may also face an early withdrawal penalty. And if you don’t repay the loan according to its terms, the unpaid amount becomes a plan distribution. That means you’ll likely owe income tax on it, plus an additional 10% tax — and you’ll have less money saved for retirement.11
A personal loan might make sense if:
- You’d rather not risk your retirement savings: You’d prefer to borrow from a lender, bank or credit union instead.
- You prefer to make smaller, monthly payments: A personal loan is repaid in monthly payments. In contrast, a 401(k) loan may be repaid in larger, quarterly payments.
- You need money quickly: You could receive funds the same day you sign your loan agreement documents. At OneMain, you may be able to get your money as soon as an hour after signing if you use a debit card to receive funds. Funds can also be paid out by direct deposit (ACH), which is available approximately 1–2 banking days after the loan closes.
- You want to build or rebuild your credit score: When you repay a personal loan as agreed, your credit score may increase over time.12
The choice is yours
A 401(k) loan or personal loan could help you access the funds you need to achieve your goals, but be sure to weigh your options carefully. Each type of loan comes with its own costs and benefits.
If you decide to move forward with a personal loan, you can easily check for offers without affecting your credit score.
This article has been updated from a previous posting on September 23, 2025. Kim Gallagher contributed.
Sources
1 https://www.equifax.com/personal/education/loans/articles/-/learn/how-to-get-a-personal-loan-how-they-work/
2, 3, 4, 6, 7, 9, 11, 12 https://www.equifax.com/personal/education/loans/articles/-/learn/what-is-a-401k-loan/
5,8, https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-loans
10 https://www.equifax.com/personal/education/credit/score/articles/-/learn/how-to-improve-credit-score/
This article is for general education and informational purposes, without any express or implied warranty of any kind, including warranties of accuracy, completeness, or fitness for any purpose and is not intended to be and does not constitute financial, legal, tax, or any other advice. Parties (other than sponsored partners of OneMain Financial (OMF)) referenced in the article are not sponsors of, do not endorse, and are not otherwise affiliated with OMF.
