Wells Fargo has closed your personal line of credit. Now what are you doing?

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Wells Fargo is closing all existing personal lines of credit, CNBC reported Thursday. Some customers are probably thinking: What now?

Fortunately, there are alternatives for clients looking for cash, according to financial experts.

They may turn to other lenders who offer personal lines of credit or personal installment loans. Homeowners may consider opening a home equity line of credit, savings for retirement might take out a 401 (k) loan, and those with certain types of life insurance might borrow against the policy, for example.

Each has its own advantages and caveats, experts said.

“Every consumer will have different needs,” said Rachel Gittleman, head of financial services and member outreach at the Consumer Federation of America, an advocacy group. “Make sure it’s something you can afford on a monthly basis in addition to your regular expenses.”

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A personal line of credit is a type of unsecured loan, which means that it is not backed by collateral. It provides flexibility for borrowers, who can borrow money at any time after the line is established.

The amounts involved are typically small and often used for unforeseen expenses or in other quick cash flow scenarios like quick capital for business ventures, according to Greg McBride, chief financial analyst at Bankrate.

But banks have also marketed them through other means, such as home improvement loans, he said.

“For one person it’s a debt consolidation, for another it’s a home improvement, for someone else it’s a jet ski,” McBride said.

Wells Fargo is closing all personal lines of credit in the coming weeks and no longer offering the product, CNBC reported Thursday. Revolving lines of credit typically allow users to borrow from $ 3,000 to $ 100,000.

“We realize the change can be inconvenient, especially when customer credit can be affected,” according to a Wells Fargo statement. “We offer a 60-day notice period with a series of pre-closing reminders, and we’re committed to helping every customer find a credit solution that meets their needs.”

Wells Fargo customers can open personal lines of credit with other banks, McBride said. Many online lenders offer them and usually have a quick turnaround time, within 48 hours, he said.

“[Personal lines of credit] have been offered for a long time, but it was never something that the big banks really got into in a big way, ”McBride said. the last 10 years or so. “

Personal loans, another type of unsecured debt, are also an option, he said. They’re slightly less flexible than a line of credit because customers borrow all the money up front and pay it back in regular monthly installments over a set amount of time, McBride said.

(Wells Fargo still offers personal loans and credit cards, according to the company’s release.)

No product will be perfect. But you are making a more informed decision.

Rachel Gittleman

responsible for financial services and member outreach at the Consumer Federation of America

Certified Financial Planner Paul Auslander, director of financial planning at ProVise Management Group in Clearwater, Fla., Has clients affected by Wells Fargo account closings.

Auslander suggested that they start a new banking relationship (he recommends a community bank) and, if they own a home, apply for a home equity line of credit. The process can take around six weeks, he said.

“Rising home prices mean a lot of homeowners are sitting on more equity than they’ve ever seen,” McBride said.

Those with cash value life insurance, such as a whole life policy, may be able to borrow against the policy if it has accumulated cash value.

“It’s the cheapest money available,” Auslander said,

However, this option carries a few caveats and risks. On the one hand, the death benefit of the insurance policy is reduced by the amount of the loan and the interest if it is not repaid during the lifetime of the owner.

Savers for retirement may also be able to take out a loan as part of their 401 (k) plan, Auslander said.

Of course, this would reduce the size of their eventual nest egg, pulling money from investments that could grow through the power of compound interest.

But 401 (k) borrowers would essentially repay themselves, with interest. The repayment must be made within five years, but the terms may vary from one employer to another.

About 83% of the plans allow investors to borrow from their accounts, according to the Plan Sponsor Council of America. Almost all 401 (k) plans require a minimum loan amount. About 75% have set a minimum of $ 1,000, according to the council.

Credit scores and fees

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Wells Fargo customers with closed lines of credit should monitor their credit reports and credit scores, said Gittleman of the Consumer Federation of America. If the available credit is drastically reduced in a short period of time, it can have a negative impact on the credit rating, she said.

Customers who see a drastic change can file a complaint with the Consumer Financial Protection Bureau, she said.

Closing any type of financial product can impact customer credit scores, according to a Wells Fargo official speaking in the background. The company will report the account as closed by the bank. Customers must continue to make scheduled payments on time to ensure positive reports to the credit bureau, the official said.

Consumers who want to replace a Wells Fargo line of credit with another type of loan should make an informed purchase by checking the product’s fees, Gittleman said. Reading customer complaints in the CFPB database can help consumers understand product defects.

“It’s not just the RPA,” she said. “There are monthly or annual fees that will be part of what you pay back.

“As a consumer you have to make sure that you are able to afford this,” she added. “No product will be perfect.

“But you are making a more informed decision.”

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