Ok ... you are thinking this way too hard. You simply took out a loan and paid interest on it as you repaid it. The interest you paid with after tax money would be the same as if you paid interest on a credit card or personal signature loan.
Now what you don't like or seem to understand is you paid interest to the 401K account which is considered earnings to the 401K account if it is put in that account. It is normal for a 401K account to be invested in something and have earnings. ALL distributions from the 401K ( contributions and earnings) are taxable. The fact that you have to pay taxes on the interest you yourself paid to the 401K loan is how it works even if it seems unfair.
