Is paying myself back interest on a 401(k) loan really a benefit?

It sounds appealing that the interest you pay goes back into your own account rather than to a bank, but the picture is more complicated. While the borrowed money is out of the market, it misses potential investment growth, which historically has outpaced the modest loan interest rate. You effectively swap market returns for the loan rate.

There is also a subtle double-taxation angle: you repay the loan with after-tax dollars, and later pay tax again on those dollars when you withdraw them in retirement from a pre-tax account. Add the default risk if you leave your job, and a 401(k) loan is usually a last resort. Exhaust an emergency fund or lower-cost borrowing first, and reserve the loan for genuine emergencies.