401k Loan Interest Rate Calculator: What Rate Will You Pay?

• 401k Expert

Quick Answer: 401k Loan Interest Rate

401k loan interest rates are typically set at the prime rate plus 1% (currently around 9.5% in 2026). Unlike regular loans, you pay this interest back to your own retirement account — so you're essentially paying yourself.

Key Takeaways

  • 401k loan rates are usually prime rate + 1% (approximately 9.5% in 2026)
  • You pay interest to your own 401k account — not a bank
  • Maximum loan is 50% of your vested balance or $50,000, whichever is less
  • Standard repayment term is 5 years (longer for home purchase)
  • If you leave your job, the loan may become due within 60 days
  • Use our calculator above to see your exact monthly payment

How 401k Loan Interest Rates Work

Unlike traditional bank loans, 401k loan interest rates aren’t based on your credit score. Instead, they’re set by your plan administrator using a formula tied to the prime rate.

The Standard Formula

Most 401k plans set the loan interest rate at:

Prime Rate + 1%

As of 2026, with the prime rate at approximately 8.5%, a typical 401k loan rate would be 9.5%.

You’re Paying Yourself

Here’s the key difference: the interest you pay goes back into your own 401k account. You’re not enriching a bank — you’re boosting your own retirement savings.

However, this isn’t as great as it sounds because:

  • You’re using after-tax dollars to pay the interest
  • The interest gets taxed again when you withdraw in retirement
  • You miss out on market returns on the borrowed amount

Monthly Payment Examples

Loan AmountRate (9.5%)5-Year Monthly PaymentTotal Interest Paid
$10,0009.5%$210$2,627
$25,0009.5%$526$6,567
$50,0009.5%$1,051$13,064

401k Loan Limits

The IRS sets strict limits on how much you can borrow:

  • Maximum: 50% of your vested account balance or $50,000, whichever is less
  • Exception: If your vested balance is under $10,000, you may borrow up to $10,000
  • One loan at a time in most plans (some allow multiple)

Repayment Rules

  • Standard term: 5 years
  • Home purchase: up to 15 years (with documentation)
  • Payments must be made at least quarterly
  • Most plans require automatic payroll deductions

The Hidden Cost: Opportunity Loss

While the interest goes back to you, the real cost is the missed market returns. If the stock market returns 10% annually but your loan rate is 9.5%, you’re barely keeping up. If the market returns 15%, you’re losing 5.5% on every dollar borrowed.

Use our 401k comparison calculator to see the full picture including opportunity cost. For more details on rates, see our 401k loan interest rate guide. To understand the opportunity cost in depth, try our 401k loan opportunity cost calculator. And for the full picture on taxes, read our 401k loan double taxation myth analysis.

When a 401k Loan Makes Sense

  1. You need cash quickly and have no other low-cost options
  2. You’re confident you’ll stay at your job through repayment
  3. The interest rate is lower than alternative borrowing options
  4. You have a solid plan to repay on schedule

Frequently Asked Questions

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