Applying for a 401(k) loan is the easiest way of gaining some extra emergency funds in serious situations. In most cases, the limit for borrowing money under the 401(k) loan scheme is about $50,000. But for the scheme, you will need proper documentation and specific reasons for breaking your retirement funds.

1. How to apply for 401(k) loan schemes?
If your loan scheme offers a 401(k) loan and you are interested in it, then your plan administrator might provide you with information regarding the scheme. He would verify your reason for the loan and guide you through the necessary rules and regulation that you need for this scheme. If your application is approved, then you would have to sign a loan repayment agreement that would have details such as loan term, interest rate, principal amount, and other additional fees.

If you are married and want to borrow an amount of more than $5,000, you would need a written approval of your spouse. After applying for a 401(k) loan, the amount of money that you could borrow would be about 50-60%of your total retirement funds.

2. How do 401(k) loans work?
Most 401(k) plans would let you borrow money from your account but some schemes would not allow you to do so. Therefore, you might have to identify the type of 401(k) scheme you have taken. If you are allowed to take a loan from your retirement funds, then you might have to fill up all the forms related to the scheme.

The setting process is pretty simple, you just have to go to the 401(k) site and proceed to the loan page of the site for specifying the amount of money you want to borrow. This online 401(k) loan page would not let you borrow money above the limit and other clauses would be calculated based on the normal five-year plan. Once the loan is approved, your payroll deduction would start from the next month itself.

3. Repayment terms of the 401(k) loan scheme
The repayment terms for 401(k) loans are pretty strict and would be enforced just like the general loan scheme. As every calculation is done based on the five-year plan, you are expected to return it within the time period of five years. If you can repay your money before the deadline, you will not be penalized for defaulting your payment.

While applying for a 401(k) loan, your plan administrator would specify the rate of interest at which the loan would be calculated. Another important thing that you have to remember is that in case of job termination, you would be required to pay the remaining amount within 60 days of your last working days.

The above points would help you to better understand the basic concepts related to the 401(k) loan scheme but you have to remember that a 401(k) loan should be considered as your last card in case of emergencies.