Loan / 401K
Date: Sun, 03/04/2007 - 20:11
My question is this-
Are there any lenders out there that would give me a loan using my remaining 401K as collateral for the loan? What I would do is borrow the amount I owe on my 401K loan, pay that off, and get a longer term with another lender, which could significantly reduce my monthly payment. I would set it up that the lender would get their monthly loan payment, via payroll deductions while I was employed, and if I was ever fired or quit, the remaining balance of the loan would be due and payable immediately. If I were to leave my company, I am then able to access the money in the 401K (with a penalty) and the loan would be paid in full.
It sounds like a win-win loan for a lender, however I can't find any lender willing to give me this loan as I have stated it here.
Does anyone have any ideas as to who a possible lender would be, or does anyone know why they wouldn't want to extend the loan? Am I missing something?
One of the reasons a lender will not/cannot do this type of loan
One of the reasons a lender will not/cannot do this type of loan is that they really cannot take a 401K as collateral -- they would have no effective recourse against you if you defaulted. When a car loan defaults, the lender can reposess the vehicle. In this situation, there is no legal way for them to "repossess" your 401K if you don't pay. Since your 401K is not supposed to be touched until age 59, and pulling money out early would cause penalties and tax burden on you, no court will ever force you to withdraw money from it to satisfy a debt. In essence, a security agreement that lists your 401K as collateral would, for all practical purposes, be worthless since the lender could never enforce it. So, even though you're plan sounds like a win/win situation, it would really be an unsecured loan that they are giving you.
The loan that you do have against your 401K, is basically you giving yourself a loan. If you don't pay it back, you're the one that loses your future income. That's why that sort of thing can be done.
One of the other reasons you may not be having luck getting a loan, is that you are currently involved in an ongoing BK. Generally you need to motion the court for its permission to incur new debt. If you took out a loan without without the courts' permission, the lender then runs the risk of you modifying your bankruptcy plan to include them in it. This has happened to us in the past, and so our company changed its loan qualifications to state "eligible loan applicants may not currently be involved in any bankruptcy proceeding."
I agree with DebtCruncher about why you have not been able to ge
I agree with DebtCruncher about why you have not been able to get another loan. I would talk to the people in payroll or even call your 401K company yourself and see if they can lower the payments, at least for a period of time. I know the people my company go through will work with our employees if need be. They did while I was out for my surgery last year. Does not hurt to contact them and see.
