401k loan question

Drez

So, I decided to take out a small 401k loan with a short repayment period. I am aware that this is not necessarily the smartest thing to do - I've read a lot about the pros and cons - but it's something I am going to do.

I'm confused about how long it takes. Most sites discuss why you should or shouldn't take a loan or how repayment and default and so on works but not many discuss how long one can expect to receive their loan.

My company allows general purpose loans. It also allows for an expedited (overnight) check. The disclaimer when selecting the expedited check option says that it will be overnighted the day the loan check is issued depending on how long it takes to liquidate blah blah blah.

I assumed your 401k loan itself was collateral but it looks like they actually sell off some of your widgets or whatever to facilitate the loan?

My questions are:

1) Is that correct?
2) How long does that liquidation period normally take?
3) Does the amount of time decrease if it's a relatively small loan?
4) Do benefits centers normally start putting everything together right away or is my request going to sit in limbo for awhile?

Mayabird

At least at the company where I work,

1) Yes, they take the money directly out of the 401k. Your payments are paid back into your account.
2) Depends on what your 401k is invested in, but if it's mutual funds just a day or two. Fixed funds (with a set interest rate) could be longer.
3) Nope
4) Since there's no credit or anything it's pretty much automated so it just takes a day or two to process.

But then it also depends on if they require paperwork to be returned, like spousal consent paperwork (even if you're not married because some companies are like that). If so then they can't process until that's returned and everything is marked properly. Some places require that a plan administrator at your workplaces approve the loan before my company can even release it, a process that can take anywhere from 15 minutes to 3 weeks to get done.

But that's just the rules at the financial company I work at. There's no standardization in the financial industry whenever they can help it so it could be different. I know at some companies that they still count the money they took out for the loan as part of your 401k account balance whereas they do not at the place where I work. I don't know processing times at other financial companies or if yours, I dunno, has a backlog because the loan processing people went on strike due to exploding toilets so it could be days before anyone even looks at it.


But as a note, see if it's possible to have the check direct deposited instead. Getting that loan check cleared could be another week of waiting at your bank/credit union whereas banks/credit unions usually have a direct deposit credited to your account within two days.

hsu

They basically take cash out of your 401k account.
If you don't have enough cash, random stocks/funds/bonds get sold on the open market until enough cash is available.
If you don't want random stuff sold off, you need to sell stuff yourself, before you get that loan check.
The entire liquidation order will happen within a few seconds, sometime during the same day the check gets mailed to you.
When this all happens depends entirely upon how fast your company relays the proper paperwork to the 401k company.

Drez

Hmm okay thanks to you both.

Sadly, no direct deposit. It's check only. I was actually going to request the loan last week but I just moved and my new address hasn't populated in the benefits system yet. I have to wait until Tuesday/Wednesday. And it is Thanksgiving so it's going to take a few days regardless.

I was worried it would take weeks though, so I feel a little better now. Thanks!

Maguano

back in the day when I worked in a 401k service center, loan checks had to be physical checks, as the sponsoring company had a disclaimer stating that by signing the back of the check you are agreeing to the terms and condition of the loan.
as far as settlement times, stock and MF, are typically T+3 (settle 3 days after the transaction date). Checks are /usually/ cut the day after settlement, then normal mail delivery.

Drez

Interesting, thanks.

So my benefits site has three tabs for requesting a loan. The first one is the loan parameters, the second is called "Fund Loan," and the third is confirmation.

When I modeled and finally went to request my loan, it automatically advanced me past the "Fund Loan" tab with a green checkmark.

Would could I infer from thaT?

(I couldn't confirm as my address isn't updated yet.)

Mayabird

Possibly a listing of whatever would be liquidated/taken out for the loan. No idea there - it's a different system than what I'm used to.

Though another note - see if it's possible to pay off the loan early without penalties. You might be able to save on some interest payments if you do so.

localh77

Yeah, that's probably right. Just guessing, but if you only have one investment, or you have enough cash to cover the loan, or something like that, they probably just skip that tab, since it wouldn't make any difference.

The only other thing I might try is seeing if you know anyone who might give you a short-term (no interest) loan until your actual loan payment comes in. A close friend, family, etc. Even your employer will sometimes give you an advance on your pay. Not a big deal, I suppose, it would just be nice to not have to hurry on the 401(k) thing, and maybe they even have an option to not overnight the check, since I'm sure they charge a decent amount for that.

Drez

Thanks!

So my address actually updated today, even though they all told me it would update Tuesday/Wednesday at the earliest. I kept checking throughout the day, because I had a feeling.

They told me that it usually takes 1-2 business days to process. And I chose expedited shipping which is overnight shipping, sent the day the check is cut.

So anyway, I put the loan request in around 3PM. The system told me it would be processed today. On my benefits page it now shows a transaction with a "trade date" of today.

Am I being too hopeful that I might get the loan check by Wednesday?

Daenris

Yeah, if it's getting sent overnight I wouldn't be surprised if you saw it tomorrow or Wednesday. Though depending on your bank, it may not be available to actually spend for several more days after you deposit it.