Personal Loan vs 401(k) Loan: How They Differ (2026)

Banks, credit unions, and online lenders

Personal Loan

Fixed rate, no retirement impact — borrowing from a lender, not from your future.

• APR range: 7–36% (credit-dependent)
• Effect on retirement savings: None — savings stay invested
• Repayment risk: Credit impact if missed
• Loan term: 2–7 years (fixed)

Pros

• Retirement savings remain invested and compounding — no opportunity cost to your 401(k)
• Fixed rate and fixed payoff date — predictable payment from day one
• No job-change risk — the loan is independent of your employer
• No required repayment if you change jobs (personal loan terms do not accelerate on employment change)

Learn from the CFPB →

Your 401(k) plan administrator (IRS-governed)

401(k) Loan

Borrow from your own retirement savings — no credit check, but the withdrawn funds stop compounding.

• Borrow limit: 50% of vested balance or $50,000 (lesser)
• Interest rate: Prime + 1% (paid to yourself)
• Credit check: None
• Job-change risk: Loan may be due immediately

Pros

• No credit check — available regardless of FICO score
• Interest goes back into your own account, not to a third-party lender
• Typically quick access — no lengthy underwriting or approval process
• No hard inquiry on your credit report

Read IRS 401(k) loan guidance →

A personal loan borrows from a lender — your retirement savings stay fully invested. A 401(k) loan borrows from your own retirement account balance, which you repay to yourself with interest; the borrowed funds stop compounding for the duration of the loan. Personal loans create a credit inquiry and appear on your credit report; 401(k) loans do not. The key risk of a 401(k) loan is job-change risk: if you leave or lose your job, the outstanding balance typically becomes due quickly — and an unpaid balance becomes a taxable distribution with a 10% early withdrawal penalty for borrowers under 59½. Source: IRS.gov and CFPB at consumerfinance.gov.

If you leave your employer (voluntarily or involuntarily) with a 401(k) loan outstanding, most plans require full repayment by the date your federal tax return is due for the year of separation (including extensions). If you cannot repay, the outstanding balance is treated as a taxable distribution — added to your ordinary income for that year — and borrowers under age 59½ also owe a 10% early withdrawal penalty on the unpaid amount. Source: IRS at irs.gov. This job-change risk is the most frequently cited structural downside of 401(k) loans.

No. A 401(k) loan does not appear on your credit report and does not affect your FICO score. There is no hard inquiry, no tradeline, and no payment history reported to the credit bureaus — because you are borrowing from your own account, not from a lender. A personal loan, by contrast, involves a hard inquiry at application and creates a new installment tradeline on your credit report. Both the inquiry and the payment history affect your FICO score. Source: myfico.com and IRS Publication 575 at irs.gov.