A:

For the purposes of a qualified plan loan, the reasonable rate of interest that the Department of Labor provides is one consistent with rates charged by commercial lenders. To apply a reasonable rate to your qualified plan loan, a plan administrator will typically survey a few financial institutions to get a general idea of the interest rate on a particular type of loan. For example, assume that the purpose of your loan is to buy a home. Your plan administrator would use a rate that is comparable to the rates used by commercial lending institutions for mortgages.

(For more information on borrowing from qualified plan loans, see Borrowing From Your Plan.)

This question was answered by Denise Appleby
(Contact Denise)

RELATED FAQS
  1. Which is better, a fixed or variable rate loan?

    A variable interest rate loan is a loan in which the interest rate charged on the outstanding balance varies as market interest ... Read Answer >>
  2. Is it possible to obtain a loan from a qualified retirement plan?

    Read how loans are available for qualified retirement plans; most loans allow for $50,000 or 50% of the current vested value, ... Read Answer >>
  3. What is the difference between a fixed annual percentage rate (APR) and a variable ...

    Fixed ARP and variable APR loans operate differently but serve the same purpose: to collect interest from a borrower so the ... Read Answer >>
  4. Are secured personal loans better than unsecured loans?

    Read about the differences between secured loans and unsecured loans and how they are used. Learn about forms of collateral ... Read Answer >>
  5. What are the typical repayment terms for a syndicated loan?

    Learn more about syndicated loans and how they are structured, specifically including the typical repayment terms for a syndicated ... Read Answer >>
  6. What are the pros and cons of life insurance policy loans?

    Find out the pros and cons of borrowing against your life insurance policy to help you decide if this loan type is the right ... Read Answer >>
Related Articles
  1. Entrepreneurship

    Business Owners: A Guide To Qualified Retirement Plan Loans

    Thinking of adding a loan feature to your company's plan? Here's what you need to know.
  2. Retirement

    Borrowing From Your Retirement Plan

    Left with no alternative but to take money out from your retirement savings? Here are some guidelines.
  3. Options & Futures

    Different Needs, Different Loans

    Find out what options are available when it comes to borrowing money.
  4. Credit & Loans

    Student Loans: Federal Loan Consolidation

    Federal loan consolidation is a helpful tool for converting an unmanageable payment into a manageable payment by combining multiple semester loans into one loan and extending your repayment schedule. ...
  5. Credit & Loans

    Before you Buy that Home: Shop for the Best Loan

    Before even starting to search for a home, the first thing you need to do is get pre-qualified for a home mortgage.
  6. Home & Auto

    Financing Basics For First-Time Homebuyers

    If you're looking to get your first mortgage, there are many financing options available.
  7. Economics

    An Introduction to Government Loans

    Government loans further policymakers' efforts to create positive social outcomes by offering timely access to capital for qualified candidates.
  8. Taxes

    401(k) And Qualified Plans: Conclusion

    By Denise ApplebyA qualified plan is established by an employer to provide retirement benefits for employees and their beneficiaries. Qualified plans can come in a few different flavors. Let's ...
  9. Taxes

    The 401(k) and Qualified Plans Tutorial

    Learn about eligibility requirements, contributions and distribution rules for these retirement plans.
  10. Credit & Loans

    Unsecured Personal Loans: 8 Sneaky Traps

    If you are seeking a personal loan, be aware of these pitfalls before you proceed.
RELATED TERMS
  1. Loan Officer

    Representatives of banks, credit unions and other financial institutions ...
  2. Origination

    The process of creating a home loan or mortgage. During the origination ...
  3. Call Loan

    A loan provided to a brokerage firm and used to finance margin ...
  4. Commercial Real Estate Loan

    definition of a commercial real estate loan
  5. Future Advance

    A clause in a mortgage which enables the lender to advance funds ...
  6. Subprime Loan

    A type of loan that is offered at a rate above prime to individuals ...
Trading Center