Cash Readily Available

If your employer participates in the URS loan program and if you have at least $2,000 in your 401(k)/457 account, you could have a check in as little as a week.

Potential Lower Returns In Your 401(k)/457 Account

When you receive a loan from your 401(k)/457 account, the loan principal amount is taken out of the investment funds (i.e. Balanced Fund, Large Cap Stock Index Fund, etc.). If these investment funds grow at an annual rate above the interest that you are paying, you will be missing out on higher growth in your account. As of December 31, 1999, the Large Cap Stock Index Fund had been growing at an average annual rate of 27.9% for five years. If you had a loan during that period of time, your outstanding principal would have missed these returns.

No Credit Check

Since URS is using your 401(k)/457 as collateral against the loan, there are no credit checks or reports to the credit bureau.

Accelerated Payback with Termination Of Employment

The 401(k)/457 repayment is through automatic pay-roll deductions. If you terminate your employment for any reason, the outstanding loan balance becomes payable. You can send a certified check to cover this balance, or you can allow the loan to go into default in which case your 401(k)/457 funds will be used to cover the loan. However, if you use 401(k)/457 funds to payoff the loan, it is treated as a withdrawal, and taxes are due on that amount. If you are younger than 55 at termination, you may even be required to pay a 10% early withdrawal penalty tax.

Convenient Repayment Method

Since loan payments are made automatically through a payroll deduction, you don’t have to worry about mailing checks and remembering when the payments are due.

Reduced Retirement Savings

The goal of the 401(k)/457 plan is to help you save for retirement. However, if you have to use your 401(k)/457 funds to pay off your loan, you will deplete your retirement savings.

Reasonable Interest Rates

In a world where credit cards charge anywhere from 12.9% to 21.9%, the prime rate plus one percent interest rate is cheap. Also, this interest goes into your 401(k)/457 account, which isn’t a bad return on your investment.

Debt Is Debt

Whenever you make purchases using debt, you have tied up a portion of your pay until the debt is paid. This reduces your future financial freedom and choices.

Emergency Funds

It’s best to save loans for an emergency. Most purchases can be planned, but it is nice to have a back-up plan for unexpected problems.