Because an amount equal to what you borrowed with be transferred from your investment selection to an interest bearing account - and you will lose market participation on that amount. Of course your investments can go down in the time period the loan is outstanding, in which case you will end up better off, but its extremely difficult to time the market in that way.
Historically, equity type investments have increased on about 70% of the trading days on record - declining 30 % ...so staying fully invested in your selection without borrowing is probably the best course of action.
Of course if you really need funds, the 401-k loan is certainly a better option for you than a credit card.
Best of luck!
The shortest answer to whether or not you should take out a 401(k) loan is as follows:
No. The 401(k) is not the Swiss Army Knife of financial planning. It is not meant to be your cash reserve or your new red truck account. It is meant to be a long-term saving and investing vehicle. The purpose of the retirement plan is to provide for retirement. The double taxation of interest payments, the opportunity cost of being out of the market and the possibility you will get fired or quit are the three main drawbacks mentioned previously. Add to that the idea that a 401(k) loan can also cause your behavior to not reflect a concern for long-term economic stability.
Let's also not forget about the tax impact caused when a plan participant with a loan separates from a company - voluntarily or involuntarily. Unless you can pay back the loan within a short period of time after leaving the firm, you'll receive as a parting gift a 1099-R as the loan will be treated as a distribution and added to your income. Add to that the penalty for early distributions on those under age 59 1/2 and you have a really expensive loan option - as well as a nasty kick in the pants when you try to come up with the money to cover the tax bill.