Borrowing from a 401(k) plan can make sense when cash is needed for a serious SHORT-TERM liquidity need. “Short-term” is roughly a year or less. “Serious liquidity need” does NOT include a sudden yearning for a flat-screen TV.
The best time to take a loan is when the stock market might be vulnerable or weakening (such as during recessions). Coincidentally, many people find that they need short-term liquidity during such periods.
When a borrower takes a 401(k) loan for appropriate amounts of money for the right SHORT-TERM reasons, these loans can be simple, convenient and low-cost. Before taking any loan, a borrower should always have a clear plan in mind for repaying these amounts on schedule or earlier.