4. If you lose your job, you may have to repay the money by Tax Day next year.
Leaving your job used to trigger a requirement that you repay your loan within 60 days. However, the rules changed in 2018 under the Tax Cuts and Jobs Act. Now you have until Tax Day for the year you took the withdrawal to pay what you owe.
If you borrowed in 2025, you'll have to repay the full balance by April 15, 2026, or by Oct. 15, 2026 if you file an extension.
This longer deadline slightly reduces the risks of borrowing. But if you take out a loan now, spend the money, and then are faced with an unexpected job loss, it could be hard to repay your loan in full.
5. If you default on your 401(k) loan, you'll owe a penalty.
If you do not pay your 401(k) loan back as required, the defaulted loan is considered a withdrawal or distribution and thus is subject to a 10% penalty applicable to early withdrawals made before age 59 1/2. That's potentially a huge cost, especially when you also consider the loss of the potential gains your money would have made had you left it invested.
However, this can certainly be better than the consequences that can occur if you fail to repay other types of loans.