Problem: John affirms here that “perfect love casts out all fear.” Yet we are told that the “fear of the Lord is the beginning of knowledge” (Prov. 1:7) and that we should “serve the Lord with fear” (Ps. 2:11). Indeed, Paul said, “knowing … the terror [fear] of the Lord, we persuade men” (2 Cor. 5:11).
Solution: Fear is being used in different senses. Fear in the good sense is a reverential trust in God. In the bad sense it is a sense of recoiling torment in the face of God. While proper fear brings a healthy respect for God, unwholesome fear engenders an unhealthy sense that He is out to get us. Perfect love casts out this kind of “torment.” When one properly understands that “God is love” (1 John 4:16), he can no longer fear Him in this unhealthy sense. For “he who fears has not been made perfect in love” (1 John 4:18). Nonetheless, at no time does proper love for God ever show disrespect for Him. Rather, it is perfectly compatible with a reverential awe for Him, which is what the Bible means by “fearing God” in the good sense (cf. 2 Cor. 7:1; 1 Peter 2:17).