How long does it take to get a 401k loan?

When a 401(k) loan is the only option you have, your 401(k) acts as a safety net, and you can borrow to pay medical expenses, prevent foreclosure, or even pay college expenses for your child or spouse. If you have an urgent need, knowing how long it takes to get the 401(k) loan funds can help you plan ahead.

Once you get approved for a 401(k) loan, it can take anywhere from a day if you sent an online loan application to several weeks if you sent a manual loan application. Online applications tend to be swift since loan processing is automated. However, manual applications may need to be signed by several people, which increases the loan processing time.

Getting started with 401(k) loans

If you plan to borrow from your 401(k) plan, start by contacting your benefits manager to verify that you can borrow from your plan, and know the plan’s 401(k) loan rules. If the plan allows 401(k) loans, and you have an adequate balance, complete the loan application online or pick a loan application form from the benefits manager.

Usually, the plan administrator will review the loan application to decide if you have sufficient balance to cover the loan you want to borrow. If you meet the requirements, your request will be approved, and the funds disbursed to your account. You should then start making periodic loan payments over the agreed loan repayment period.

How long do 401(k) loans take?

Once you get approved for a 401(k) loan, it can take anywhere from one day up to several weeks to receive the funds. If you send an online loan application, it can take about one to five days for the funds to reach your account.

For manual applications, the period it takes for the 401(k) funds to be released depends on how fast the request moves from the employer to the plan administrator. Since several people will sign off the request, there may be delays as the application is sent down the line.

The key parties involved include the trustee, administrator, and investment provider. Somebody at the employer’s company must approve the loan, and send it down to a third-party administrator or TPA to verify that your loan meets the requirements. The request will be sent to the investment provider to process the request, liquidate part of your investments, and send the money out.

If you have an urgent financial need, find out how long the employer takes to release the 401(k) loan. Start by asking the HR or benefits manager to know how long the turnaround times typically are. Also, ask your co-workers to know how long it took them to get the 401(k) loan funds.

How is a 401(k) loan disbursed?

Most plans disburse 401(k) loans in form of a check, direct deposit, or wire transfer. If you need funds quickly, you can opt to receive funds through direct deposit or wire transfer. With electronic transfer, the funds can take two to three days to arrive in the account once the loan is approved.

If the plan has no other disbursement methods other than mailed checks, it could take one to two weeks to receive the check. You will also need to deposit the check into your bank account, which could take another day to clear. Compared to direct deposit and wire transfer, check disbursements can take weeks to be mailed, banked, and cleared.

How much does it cost to take 401(k) loans?

When you borrow from your 401(k), there are certain costs that you will incur in the process. Some of these costs include a one-time origination fee, interest you pay on the loan, and the opportunity cost of taking out money from your retirement account.

Most 401(k) plans charge a one-time origination fee of $50 to $100, or more for large loans. For example, if you pay $75 for a $1000 loan, you will be losing $75 upfront. You may also pay a processing and maintenance fee of $25 to $50.

In addition to these fees, you will also pay interest on the loan, only that this time, you will be paying yourself the interest. The 401(k) loan interest rate is usually 1% to 2% above the prime rate.

You should also consider the opportunity cost of borrowing from your 401(k). The amount of loan you take from a 401(k) is removed from your plan, and this means that you will miss out on the opportunity to participate in market gains.

Can you borrow from 401(k)?

If you have a 401(k) through your employer, you should check if your employer allows 401(k) loans. The IRS allows 401(k) plans to issue loans to participants, but this is just an option that employers can adopt or ignore. Some plans may decide not to allow loans.

Check the summary plan description to know if the employer allows 401(k) loans. You can also ask the employer to know if you can borrow against your retirement savings. If the employer does not allow 401(k) loans, you can still make a hardship withdrawal from your 401(k) account.

If you have an old 401(k) with a previous employer, you may not be allowed to tap into your retirement savings. However, Beagle can help you unlock your old 401(k) and take a 401(k) loan against the retirement money. You can also rollover the old 401(k) to our IRA to enjoy a wider investment pool and gain control over your retirement money.